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Sapa Extrusions, Inc. v. Liberty Mutual Insurance Co.

United States Court of Appeals, Third Circuit

September 13, 2019

SAPA EXTRUSIONS, INC. f/k/a ALCOA Extrusions, Inc., Appellant
v.
LIBERTY MUTUAL INSURANCE COMPANY; NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, PA; GERLING KONZERN ALLEGEMEINE VERSICHERUNGS-AG a/k/a Gerling Konzern General Insurance Company; PACIFIC EMPLOYERS INSURANCE COMPANY; ACE AMERICAN INSURANCE COMPANY; ARCH SPECIALTY INSURANCE COMPANY f/k/a Rock River Insurance Company; GREAT AMERICAN ASSURANCE COMPANY; INSURANCE COMPANY OF THE STATE OF PENNSYLVANIA

          Argued: May 1, 2019

          On Appeal from the United States District Court for the Middle District of Pennsylvania No. 3:13-cv-02827 District Judge: Hon. Malachy E. Mannion

          James C. Martin, REED SMITH LLP, Luke E. Debevec, Jenna Farr, REED SMITH LLP, Michael Conley, Meghan K. Finnerty, OFFIT KURMAN, Counsel for Appellant Sapa Extrusions, Inc.

          Teresa Ficken Sachs, William C. Foster, Audrey J. Copeland, MARSHALL DENNEHEY WARNER, COLEMAN & GOGGINS, Counsel for Appellee Liberty Mutual Insurance Company.

          Phillip R. Earnest, Adam J. Tragone, PIETRAGALLO GORDON ALFANO, BOSICK & RASPANTI LLP, Agelo L. Reppas, Allyson C. Spacht, BATESCAREY LLP, Counsel for Appellees National Union Fire Insurance Company of Pittsburgh, PA, and Insurance Company of the State of Pennsylvania.

          Shane R. Heskin, WHITE AND WILLIAMS LLP, Counsel for Appellee Gerling Konzern Allegemeine Versicherungs AG, a/k/a Gerling Konzern General Insurance Company.

          Stephen A. Cozen, Deborah M. Minkoff, Stephen S. Kempa, COZEN O'CONNOR, Counsel for Appellees Pacific Employers Insurance Company and Ace American Insurance Company.

          Jonathan P. McHenry, Thomas M. Wester, CONNELL FOLEY LLP, Counsel for Appellee Arch Specialty Insurance Company.

          Michael A. Kotula, Michael E. Buckley, RIVKIN RADLER LLP, Counsel for Appellee Great American Assurance Company.

          John G. Koch, WEISBROD MATTEIS & COPLEY PLLC, Counsel for Amicus Curiae United Policyholders.

          Maureen M. McBride, James C. Sargent, LAMB MCERLANE PC, Counsel for Amici Curiae American Property Casualty Insurance Association and Insurance Federation of Pennsylvania.

          Louis C. Long, THOMAS, THOMAS & HAFER, Counsel for Amicus Curiae Pennsylvania Defense Institute.

          Robert J. Cosgrove, WADE CLARK MULCAHY, Counsel for Amicus Curiae Philadelphia Association of Defense Counsel.

          Before: RESTREPO, PORTER, and FISHER, Circuit Judges.

          OPINION

          PORTER, CIRCUIT JUDGE.

         This appeal asks whether, under Pennsylvania insurance law, a manufacturer may recover from its liability insurers the cost of settling a lawsuit alleging that the manufacturer's product was defective. Consistent with longstanding precedent, we hold that recovery turns on the language of the specific insurance policies at issue. We will thus affirm in part and vacate in part the District Court's judgment and remand for further consideration consistent with this opinion.

         I

         A

         Sapa Extrusions, Inc.[1] manufactures aluminum extruded profiles, which are formed by pushing a hot billet of aluminum alloy through a metal die with a hydraulic press. After forming, but before delivering, the extrusions, Sapa pre- treats the metal and coats it with primer and topcoat. As Sapa describes it, "[t]his pretreatment coating process is done in multiple stages, involving cleaning and degreasing to remove organic and inorganic materials, chemical etching, and finally chemical coating to assist with paint adherence." Appellant's Br. 11.

         For decades, Sapa supplied "organically coated extruded aluminum profiles" to Marvin Lumber and Cedar Company and Marvin Windows of Tennessee, Inc. (together, "Marvin"). App. 155-56. Marvin incorporated these extrusions with other materials to "manufactur[e] aluminum clad windows and doors and related products." App. 156. This process was permanent, so if an extrusion was defective for some reason, it was not feasible to swap out only that extrusion. Instead, the whole window or door would have to be replaced. Between 2000 and 2010, Sapa sold about 28 million extrusions to Marvin, which Marvin incorporated in about 8.5 million windows and doors.

         Sapa agreed to Marvin's "Aluminum Extrusion Coating Specification" in 1996. App. 157. This contract provided that "the coating used on aluminum extrusions used on Marvin window and door products shall meet or exceed all of the requirements" of a relevant industry standard. Id. Sapa later agreed to revisions of Marvin's specification that incorporated the updated industry standard.

         Over the course of its relationship with Sapa, Marvin sometimes received complaints from customers that the aluminum parts of its windows and doors would oxidize or corrode. At first, Sapa and Marvin worked together to determine the nature of these complaints and how to fix them. In the mid-2000s, however, there was an uptick in these complaints, most of which came from people who lived within a mile or so from the ocean.

         In 2010, Marvin sued Sapa in the United States District Court for the District of Minnesota (the "Underlying Action"), alleging that Sapa had sold it extrusions that failed to meet Marvin's specifications. Marvin asserted claims for (1) breach of contract, (2) breach of express warranty, (3) breach of implied warranty of merchantability, (4) breach of implied warranty of fitness for a particular purpose, (5) fraud, (6) negligent misrepresentation, (7) unlawful trade practices, (8) consumer fraud, (9) fraudulent concealment, and (10) contribution/indemnity.

         Here are the relevant allegations in the Marvin Complaint.

• Sapa made specific warranties to Marvin about its extrusions, including that they would "meet the applicable [industry] specifications for superior performing organic coatings on aluminum extrusions." App. 157.
• Sapa "changed its processes, procedures, and materials for the pretreatment of organically coated extruded aluminum profiles without notifying Marvin of this significant and material change." App. 158.
• Sapa assured Marvin that the changes to the pre-treatment process would not affect the quality of the extrusions, even though Sapa knew (and intentionally concealed from Marvin) that the extrusions did not meet Marvin's specifications. Sapa "represented to Marvin that it would fully stand behind its organically coated extruded aluminum profiles if they failed to perform or were otherwise defective." App. 161.
• Marvin's products that incorporated Sapa's extrusions "prematurely failed in coastal installations in the field at an abnormal rate." App. 161. In particular, surface finishes were "peeling, losing adhesion, or otherwise degrading in a manner which far exceed[ed] the minimal corrosion occasionally experienced on aluminum clad windows and doors installed near the coast." Id.
• Marvin "expended in excess of $75, 000 in repairing and/or replacing Sapa's organically coated extruded aluminum profiles [that] experienced surface cracking, checking, peeling and/or loss of adhesion in installations in the field." App. 162.

         Marvin sought monetary damages for "economic losses stemming from 'investigating and responding to' consumer complaints, 'identifying and qualifying alternative' extrusion suppliers, 'repairing' and 'replacing' the failed extrusions, rebuilding its 'valuable reputation,' and experiencing lost 'sales and profits.'" App. 10.

         Marvin and Sapa engaged in nearly three years of discovery. They then cross-moved for summary judgment. Among other things, the Minnesota district court held that:

• Genuine disputes of material facts precluded summary judgment on whether (1) Sapa provided Marvin with an express performance warranty, (2) Sapa's terms and conditions applied to the parties' extrusion deals, and (3) Sapa breached its contract with Marvin for the extrusions that Marvin had not yet incorporated into its products. Marvin Lumber & Cedar Co. v. Sapa Extrusions, Inc., 964 F.Supp.2d 993, 998-1003 (D. Minn. 2013).
• Marvin's choice to provide Sapa with detailed specifications for the extrusions precluded Marvin's claim for breach of implied warranties. Id. at 1005-06. ("Marvin may pursue a breach of warranty for Sapa's alleged failure to meet its specifications, but its decision to provide those specifications precludes any implied warranties that might have otherwise arisen between the parties.").
• Marvin's claim for negligent misrepresentation failed because, under Minnesota's "independent duty rule," "Sapa owed Marvin no extra-contractual duty of care." Id. at 1006.
• Under Minnesota's economic-loss rule, Marvin could not assert tort claims for any of Sapa's alleged misrepresentations "based on conduct that would constitute a breach of contract." Id. at 1008 ("[A]ny tort claim premised on Sapa's failure to conform to [Marvin's] specifications is premised on a breach of contract (or rather, breach of warranty) and barred under Minnesota law.").

         On the eve of trial in 2013, Sapa and Marvin settled their dispute for a large sum.

         B

         Throughout the period implicated by Marvin's allegations, Sapa maintained twenty-eight commercial general liability (CGL) insurance policies through eight insurance carriers (together, the "Insurers").[2] Combined, these policies supposedly blanketed the relevant period with liability coverage. Each policy required an "occurrence"-a term specifically defined in each policy-to trigger coverage.

         Sapa tendered Marvin's claims to another carrier, Zurich American Insurance Company, which accepted the defense under a reservation of rights. But the Insurers disclaimed coverage. So Sapa sued them all in late 2013, asserting breach of contract under the twenty-eight policies and seeking a declaratory judgment to recover the cost of the underlying settlement. The parties engaged in extensive discovery before each moved for summary judgment.

         The District Court first held that, to determine whether coverage existed under any of the policies for Marvin's claims and the resultant settlement, it could rely only on how Marvin had framed its claims in its underlying complaint. The District Court thus did not rely on any evidence uncovered in the three years of discovery in the Underlying Action. On the merits, the District Court analyzed coverage under all twenty-eight policies as a group. Agreeing with the Insurers, the Court held that Marvin's claims in the Underlying Action were not an "occurrence" that triggered coverage under any of the policies. The District Court also rejected Sapa's ancillary arguments on other coverage-triggering ...


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