On Appeal from the United States District Court for the Western District of Pennsylvania (D.C. Civ. No. 01-00889). Honorable Donald E. Ziegler, Chief Judge, and Honorable Terrence F. McVerry, District Judge*fn1
The opinion of the court was delivered by: Greenberg, Circuit Judge.
BEFORE: ROTH and GREENBERG, Circuit Judges, and BUCKWALTER, District Judge*fn2
This matter comes on before the court on an appeal by defendant Liberty Mutual Insurance Company ("Liberty Mutual") from an order of the district court entered on June 27, 2002, granting partial summary judgment in favor of plaintiff USX Corporation ("USX") on its contract claims arising out of Liberty Mutual's refusal to defend and indemnify USX in various actions brought against it under a Workmen's Compensation/Employers' liability policy ("WC/EL policy") that Liberty Mutual had issued to USX.*fn3 Liberty Mutual also appeals from the final judgment entered in favor of USX on January 9, 2004. The case is also before us on a cross-appeal that USX filed from the portion of the district court's order of June 27, 2002, granting Liberty Mutual partial summary judgment and the judgment entered on January 9, 2004, in favor of Liberty Mutual on USX's claim charging bad faith denial of insurance coverage. For the reasons we set forth below, we will reverse the order of June 27, 2002, and the judgment of January 9, 2004, to the extent that they are in favor of USX and will affirm the order and judgment to the extent that they are in favor of Liberty Mutual. Furthermore, we will remand the case to the district court to enter a final summary judgment in favor of Liberty Mutual on the portions of the summary judgment that we are reversing.
II. FACTUAL AND PROCEDURAL BACKGROUND
A. The Parties and the Relevant Insurance Contract
USX is a Delaware corporation with its principal place of business in Pennsylvania, and Liberty Mutual is a mutual insurance company founded by an act of the Massachusetts Legislature with its principal place of business in that state.*fn4 In 1912, Liberty Mutual issued to USX a standard form WC/EL policy, which the parties annually renewed until January 1, 1980.*fn5 Although issued in Pennsylvania, the WC/EL policy provided coverage to USX for specified operations in identified states, including some USX operations in Texas.
The WC/EL policy had two parts: "Coverage A-- Workmen's Compensation" ("Coverage A") provided coverage for USX's statutory liability for workmen's compensation claims; and "Coverage B-- Employers' Liability" ("Coverage B") provided coverage for liability that the exclusivity provisions of the applicable workmen's compensation statute did not bar. Thus, ordinarily, at least, Coverage B covered workmen's claims that were not based on no fault workmen's compensation statutory provisions.*fn6 The portion of the WC/EL policy most germane to this appeal is Coverage B, which covered "all sums which [USX] shall become legally obligated to pay as damages because of bodily injury by accident or disease[.]" J.A. at 662. The WC/EL policy contained a single "Definitions" section, applicable to both Coverage A and Coverage B, containing the following definition:
Bodily Injury by Accident; Bodily Injury by Disease The contraction of disease is not an accident within the meaning of the word 'accident' in the term 'bodily injury by accident' and only such disease as results directly from a bodily injury by accident is included within the term 'bodily injury by accident.' The term 'bodily injury by disease' includes only such disease as is not within the term 'bodily injury by accident.'
J.A. at 662.*fn7 The policy did not define "accident" or "disease."
While Coverage B insured USX for damages resulting from either "bodily injury by accident" or "bodily injury by disease," there was a notable limitation on the latter coverage in that the policy did not cover a claim for "bodily injury by disease" "unless prior to thirty-six months after the end of the policy period written claim is made or suit is brought against the insured for damages[.]" J.A. at 662. This ...