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In re Texas Eastern Transmission Corp. PCB Contamination Ins. Coverage Litigation

filed: January 10, 1994.

IN RE: TEXAS EASTERN TRANSMISSION CORP. PCB CONTAMINATION INSURANCE COVERAGE LITIGATION (MDL NO. 764) ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES, LTD.; NATIONAL SURETY CORPORATION
v.
TEXAS EASTERN TRANSMISSION CORPORATION; FIDELITY & CASUALTY INSURANCE COMPANY OF NEW YORK; CERTAIN UNDERWRITERS AT LLOYDS OF LONDON, INCLUDING THE INSURANCE COMPANY OF IRELAND; AETNA CASUALTY AND SURETY COMPANY; AMERICAN HOME ASSURANCE COMPANY; BOSTON OLD COLONY INSURANCE COMPANY; CONTINENTAL CASUALTY INSURANCE COMPANY; FIRST STATE INSURANCE COMPANY; HIGHLANDS INSURANCE COMPANY; THE HOME INSURANCE COMPANY; INSURANCE COMPANY OF NORTH AMERICA; INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA; INTERNATIONAL INSURANCE COMPANY; LEXINGTON INSURANCE COMPANY; MIDLAND INSURANCE COMPANY MUTUAL MARINE INSURANCE COMPANY; PRUDENTIAL REINSURANCE COMPANY; RANGER INSURANCE COMPANY; REPUBLIC INSURANCE COMPANY; STONEWALL INSURANCE COMPANY; PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION; UNITED STATES OF AMERICA; UNITED STATES ENVIRONMENTAL PROTECTION AGENCY; THE FIDELITY & CASUALTY CO. OF NEW YORK V. THE TEXAS EASTERN TRANSMISSION CORP.; TEXAS EASTERN TRANSMISSION CORPORATION V. FIDELITY AND CASUALTY COMPANY OF NEW YORK; ASSOCIATED ELECTRIC & GAS INSURANCE SERVICES, LTD.; AETNA CASUALTY AND SURETY COMPANY; AMERICAN HOME ASSURANCE COMPANY, A/K/A AMERICAN HOME INSURANCE COMPANY; BOSTON OLD COLONY INSURANCE COMPANY; CIGNA INSURANCE COMPANY; CONTINENTAL CASUALTY COMPANY; EMPLOYERS MUTUAL CASUALTY COMPANY; FIRST STATE INSURANCE COMPANY; HIGHLANDS INSURANCE COMPANY; THE HOME INSURANCE COMPANY; THE INSURANCE COMPANY OF NORTH AMERICA; INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA; INTERNATIONAL INSURANCE COMPANY; LEXINGTON INSURANCE COMPANY; MIDLAND INSURANCE COMPANY NATIONAL SURETY CORPORATION; PRUDENTIAL REINSURANCE COMPANY; RANGER INSURANCE COMPANY; REPUBLIC INSURANCE COMPANY; STONEWALL INSURANCE COMPANY; UNITED STATES FIRE INSURANCE COMPANY; CERTAIN UNDERWRITERS AT LLOYD'S, LONDON AND CERTAIN LONDON MARKET INSURANCE COMPANIES; TEXAS EASTERN TRANSMISSION CORPORATION, APPELLANT



Appeal from the United States District Court for the Eastern District of Pennsylvania. D.C. Civil No. 88-02126. D.C. Civil No. 88-05039. D.C. Civil No. 88-05707

Before: Mansmann, Alito and Aldisert, Circuit Judges.

Author: Mansmann

Opinion 2 OF 2

Opinion OF THE COURT

MANSMANN, Circuit Judge.

Preliminary Note

Three cases filed in three courts were consolidated for trial in the district court from whose combined judgments these appeals have been taken at No. 92-1638. This opinion addresses only one facet of these cases -- the liability of Texas Eastern Transmission Corp. as adjudicated by the district court in Fidelity & Casualty Co. of New York v. The Texas Eastern Transmission Corp., (hereinafter the "F&C " action) originally filed in the Northern District of Texas, Texas Eastern Transmission Corp. v. Fidelity and Casualty Co. of New York et al., (hereinafter the "Texas Eastern " action) originally filed in a Texas state court and later removed to the Southern District of Texas, and Associated Electric & Gas Insurance Services Ltd. et al. v. Texas Eastern Transmission Corp et al. (hereinafter the "AEGIS" action) filed in the Eastern District of Pennsylvania. All three cases were later assigned by the Multi-District Litigation Panel to the district court below.

On April 7, 1993, we heard argument on the appeal of Texas Eastern Transmission Company from the judgment of the district court, in a multi-district litigation, declaring that Texas Eastern's insurance carriers (the "Carriers") were not liable for damages arising out of Texas Eastern's discharge of PCB-laden oils into the environment. Our unreported opinion, affirming the district court's judgment, was filed on May 28, 1993. We vacated that opinion on January 6, 1994. This opinion in effect reinstates the Discussion on liability set forth in our previous not-for-publication opinion.

We deem it necessary to write separate opinions because Texas Eastern Transmission Corp. petitioned for rehearing in only two of the cases -- Texas Eastern and AEGIS -- and only on the subject matter jurisdiction issue. We ordered panel rehearing in those two cases only, stayed our mandate in all three cases and ordered oral re-argument of the question of subject matter jurisdiction in the two cases. Our companion opinion discusses subject matter jurisdiction in the cases that were reheard and also the question of jurisdiction in F&C because jurisdiction in that case was indirectly put to question in the rehearing arguments. This opinion addresses once again the subject of Texas Eastern liability in all three cases.

Texas Eastern Transmission Corporation claimed that its comprehensive general liability insurance carriers (the "Carriers") must pay for damages associated with the cost of removing PCBs that present a danger of polluting the property of third parties. The district court granted summary judgment against Texas Eastern on the theory that Texas Eastern provided prejudicially late notice of its claim to the Carriers. We will affirm in the case of Fidelity Casualty Co. of New York v. Texas Eastern Transmission Co., D.C. Civ. No. 88-05039 (E.D. Pa.).

I.

The relevant facts, which appear in great detail in the district court's opinion, may be summarized as follows.

Until the early 1970s, Texas Eastern used a toxic, PCB-laden lubricant in compressor stations along a pipeline that stretched 9,500 miles, from Texas to New York. The lubricant co-mingled with other toxic fluids in the pipeline, and Texas Eastern discharged those fluids into the environment, either by venting them into the air during start-up or shut-down, or by discharging them into earthen pits, which occasionally overflowed. Texas Eastern would also occasionally spray fluids from the pits to kill weeds or to control dust.

As early as 1972, the lubricant's manufacturer informed Texas Eastern that the lubricant contained toxic PCBs. Throughout the late 1970s and early 1980s, Texas Eastern became increasingly aware that PCBs were entering the environment via the pipeline fluid. The district court determined that, taking all inferences in favor of Texas Eastern, a genuine issue of material fact existed as to whether Texas Eastern knew between 1970 and December 1986 that PCBs were present in the pipeline fluid and that the PCBs could migrate, via the pipeline fluid, onto the property of third parties. That issue was critical because such knowledge would trigger Texas Eastern's obligation to notify Carriers of an insurable "occurrence" under the relevant insurance policies.

Employing the correct summary judgment standard, the district court determined that although a rational factfinder could conclude that Texas Eastern knew PCBs were migrating to the property of third parties as early as 1972, December of 1986 was the latest possible date a jury could conclude that Texas Eastern discovered that PCBS were migrating onto the property of third parties. The district court based its determination in part on Texas Eastern's concession that in December, 1986, a preliminary report commissioned by Texas Eastern gave it reason to know that PCBs were migrating off-site.

As we review in more detail below, between December, 1986, and August, 1987, Texas Eastern entered into at least one consent decree and negotiated in earnest with the Environmental Protection Agency. After some months of negotiation with EPA, Texas Eastern notified the Carriers of a potential occurrence giving rise to a claim. The cost of clean-up is now estimated at $750 million.

Fidelity and Casualty, Texas Eastern's primary carrier, brought its case in the Northern District of Texas premised on diversity jurisdiction, seeking a declaratory judgment that it was not liable under its policy for the claims. Associated Electric & Gas Insurance Services, Ltd. ("AEGIS") and National Surety Corporation, other carriers of Texas Eastern, brought a second suit against Texas Eastern and all of the remaining carriers in the Eastern District of Pennsylvania. Federal subject matter jurisdiction in the AEGIS action was premised on the Foreign Sovereign Immunities Act. Texas Eastern brought a third state-court action against all the carriers, later removed to the Southern District of Texas also on the basis of the Immunities Act. Because we address whether Immunities Act jurisdiction was proper in a separate opinion, that issue will not be discussed here.

In an extensive opinion, the district court determined that summary judgment should be entered against Texas Eastern on the ground that its delay in providing notice to the Carriers was unreasonable and prejudicial as a matter of law. In re Texas Eastern Transmission Corporation PCB ...


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