1994 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

5-27-1994

Air Products and Chem., Inc. v. Hartford Acc. &

Indem. Co., et al.

Precedential or Non-Precedential:

Docket 91-1681

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Recommended Citation

"Air Products and Chem., Inc. v. Hartford Acc. & Indem. Co., et al." (1994). 1994 Decisions. Paper 30.

http://digitalcommons.law.villanova.edu/thirdcircuit_1994/30
1 

 UNITED STATES COURT OF APPEALS 

FOR THE THIRD CIRCUIT 

 

NOS. 91-1681 and 91-1682 

 

 AIR PRODUCTS AND CHEMICALS, INC., 

 Plaintiff

 

v. 

HARTFORD ACCIDENT AND INDEMNITY COMPANY; and 

LIBERTY MUTUAL INSURANCE COMPANY; and 

AETNA CASUALTY AND SURETY COMPANY, 

 Defendants

 

v. 

NATIONAL UNION FIRE INSURANCE COMPANY 

OF PITTSBURGH, PA.; and 

THE TRAVELERS INSURANCE COMPANY, 

 Third-Party Defendants

v. 

AIR PRODUCTS & CHEMICALS, INC., 

 Third-Party Defendant

 

AETNA CASUALTY AND SURETY COMPANY, 

 Appellant No. 91-1681

HARTFORD ACCIDENT & INDEMNITY COMPANY, 

 Appellant No. 91-1682

Appeals from the United States District Court 

for the Eastern District of Pennsylvania 

D. C. Civil No. 86-7501 

 

Argued January 24, 1994 

Before: MANSMANN, NYGAARD, and SEITZ, Circuit Judges. 

 Filed: May 31, 1994 
2 

Valerie J. Munson (Argued) 

Daniel W. Cantú-Hertzler 

MILLER DUNHAM DOERING & MUNSON, P.C. 

1515 Market Street, 13th Floor 

Philadelphia, PA 19102 

 Attorneys for Appellant 

 Aetna Casualty & Surety Co. 

George W. Mayo, Jr. (Argued) 

Teresa C. Plotkin 

Jonathan T. Rees 

HOGAN & HARTSON 

555 Thirteenth Street, N.W. 

Washington, DC 20004-1109 

John M. Fitzpatrick 

DILWORTH, PAXSON, KALISH & KAUFFMAN 

1735 Market Street 

3200 Mellon Bank Center 

Philadelphia, PA 19103 

 Attorneys for Appellant 

 Hartford Accident & Indemnity Co. 

Sherry W. Gilbert (Argued) 

Anthony F. King 

HOWREY & SIMON 

1299 Pennsylvania Avenue, N.W. 

Washington, DC 20004 

Stephen S. Ferrara 

Richard H. Albert 

LAW DEPARTMENT, AIR PRODUCTS & CHEMICALS, INC. 

P. O. Box 538, 7201 Hamilton Boulevard 

Allentown, PA 18195 

 Attorneys for Appellee 

 Air Products & Chemicals, Inc. 

_______________ 

OPINION OF THE COURT 

SEITZ, Circuit Judge. 

 These appeals principally involve the duty of two 

insurance carriers under Pennsylvania law to defend their insured 

in numerous actions instituted against it. The carriers contend 
3 

that the claims asserted against their insured could not have 

arisen during the periods of their policy coverage. Additionally, 

if such duties to defend are found, they assert that the proper 

allocation of defense and indemnity costs must be addressed. 

 The district court had diversity jurisdiction, while we 

have jurisdiction over partial summary judgment orders made final 

by certification under Fed. R. Civ. P. 54(b). Our standard of 

review is plenary. The parties agree that Pennsylvania law 

controls. 

I. ACTION AGAINST AETNA 

 Air Products & Chemicals, Inc. ("Air Products") 

instituted this declaratory judgment action against, inter alia, 

appellant Aetna Casualty & Surety Company ("Aetna"), which 

provided it with coverage from May 16, 1951 to June 8, 1953. Air 

Products sought a determination that Aetna breached a duty that 

it owed to defend and indemnify it1 in numerous underlying civil 

actions pending against it, thus requiring Air Products to take 

up its own defenses. The plaintiffs in these underlying actions 

alleged injuries as a result of their exposure at their 

workplaces to fumes and gases emitted from welding rod material 

sold to their employers by numerous defendants, including Air 

Products. 

 The parties here filed cross-motions for partial 

summary judgment. The district court granted Air Products' 

 

1Air Products' declaratory action sought reimbursement for 

defense costs and expenses incurred in the underlying suits 

through September 30, 1989. 
4 

motion on the ground that Aetna had breached a duty to defend it2

in the underlying actions for injuries incurred during the period 

of Aetna's coverage. The district court denied Aetna's crossmotion. Aetna appeals. 

 Generally speaking, under Pennsylvania law, the issuer 

of a general liability insurance policy has a duty to defend its 

insured when the allegations in the complaint against it could 

potentially fall within the coverage of the policy. Gedeon v. 

State Farm Mut. Auto. Ins. Co., 188 A.2d 320, 321-22 (Pa. 1963); 

see Cadwallader v. New Amsterdam Cas. Co., 152 A.2d 484, 488 (Pa. 

1959); Wilson v. Maryland Cas. Co., 105 A.2d 304, 307 (Pa. 1954). 

The district court applied that rule in finding for Air Products. 

 The resolution of this dispute first requires us to 

examine the pertinent allegations of a typical complaint in one 

of the underlying actions to determine whether it could 

potentially fall within the coverage of Aetna's policy. We turn 

to such allegations: 

The Defendants, [including Air Products] 

during all the times herein mentioned and for 

 

2Aetna's policy provided in pertinent part: 

II. Defense, Settlement, Supplementary 

 Payments 

As respects the insurance afforded by the 

other terms of this Policy the Company shall: 

 (a) defend any suit against the Insured 

alleging such injury, sickness, disease or 

destruction and seeking damages on account 

thereof, even if such suit is groundless, 

false or fraudulent; but the Company may make 

such investigation, negotiation and 

settlement of any claim or suit as it deems 

expedient . . . . 
5 

a long time prior thereto, have been and now 

are engaged in the manufacture of materials 

used for, insulation containing asbestos 

and/or welding rods, that the products 

manufactured, compounded, and prepared by 

Defendants, acting through their servants, 

employees, representatives and agents were 

and are placed on the market to be purchased 

and used by the public. 

. . . . 

 The Plaintiff says that during the years 

1951 to 1984, inclusive, he was employed as a 

welder, and that in the performance of his 

duties as a welder, he was required to handle 

large quantities of the products manufactured 

and distributed by the above-named 

Defendants. That in addition to the fact 

that Plaintiff actually used the product 

manufactured by the above-named Defendants, 

[including Air Products] and many more, as a 

welder, and specifically many and various 

products containing asbestos, the Plaintiff 

says that on many of the jobs, while not 

using himself the specific products 

manufactured by the Defendants, he was 

nevertheless exposed to the dangerous 

materials and especially those dust, fibers, 

fumes, and particulates, which were used by 

other workers in the same area at which 

Plaintiff was working. 

[Emphasis added] 

 

 Air Products says, as the district court concluded, 

that the quoted allegations of the underlying complaint can be 

read to charge that the plaintiff was injured as a result of 

exposure to welding rod materials supplied, inter alia, by Air 

Products during the 1951 to 1984 period. This, of course, 

included the period of Aetna's coverage. Aetna responds in its 

brief that the "allegations [in the underlying complaint] do not 
6 

establish coverage, although neither do they expressly rule it 

out." Aetna Brief at 28. 

 Given Aetna's own quoted response and the allegations 

of the underlying complaint, the duty to defend provision of the 

policy could have been triggered under Gedeon because the welding 

rod material could have been sold by Air Products to the employer 

in the underlying action during the covered period. But Aetna 

argues that the summary judgment record shows that Air Products 

sold no welding rod material to any underlying employer during 

the period of Aetna's coverage and thus summary judgment should 

have been granted it on that ground. 

 It is apparent that in seeking summary judgment Aetna 

was asking the district court to go beyond the face of the 

underlying complaint to decide Aetna's initial duty to defend. 

This the district court was not free to do unless this case 

triggered cases outside the general Pennsylvania rule. Aetna 

says that this is such a case. 

 Aetna cites various cases that permit use of evidence 

to determine whether the duty to defend has been triggered. Thus, 

Aetna says that evidence of the absence of sale of welding rods 

by Air Products to underlying employers should be useable to show 

that it could not have been Air Products' welding rod materials 

that caused the injury to the plaintiffs. We acknowledge that 

the New York federal district court case on which Aetna relies 

most heavily seems to support its position. See Avondale Indus. 

v. Travelers Indem. Co., 774 F. Supp. 1416, 1426 (S.D.N.Y. 1991) 

(admitting evidence in an "unusual posture and [procedural] 
7 

context" under Louisiana law). However, our case is controlled 

by Pennsylvania law and we reconcile the Commonwealth's lines of 

cases differently. 

 Aetna then cites a line of Pennsylvania cases dealing 

with policy exclusions.3 In these suits, the allegations of the 

underlying complaints clearly fall within policy exclusions. 

Because the claims do not potentially trigger coverage under the 

policy, there is no duty to defend. See, e.g., Germantown Ins. 

Co. v. Martin, 595 A.2d 1172 (Pa. Super. Ct. 1991), alloc. 

denied, 612 A.2d 985 (Pa. 1992) (denying defense when the 

allegations in the complaint of intentional gunshots clearly fell 

within the policy's exclusion of "expected or intended" damage). 

Extrinsic evidence is not required to resolve these disputes. 

However, when the allegations may or may not fall within the 

exclusion (and therefore the coverage), the insurer is required 

to defend. Safeguard Scientifics, Inc. v. Liberty Mut. Ins. Co., 

766 F. Supp. 324 (E.D. Pa. 1991), aff'd in part without op., 961 

F.2d 209 (3d Cir. 1992) (table). 

 Next, there is a subset of exclusion cases that 

concerns exceptions to exclusions. This is the group of cases 

that permits extrinsic evidence to resolve the duty to defend. 

The burden is on the insured, not the insurer, to introduce 

evidence to show that the exclusion which appears to be triggered 

 

3We include in this category cases that construe policy 

provisions as incapable of covering the conduct alleged. See, 

e.g., Erie Ins. Exch. v. Transamerica Ins. Co., 533 A.2d 1363, 

1368 (Pa. 1987) (holding that a policy insuring "use and 

operation" of an automobile cannot be triggered by a 3-year-old, 

who cannot "use" an automobile as a matter of law). 
8 

does not apply after all. See, Northern Ins. Co. v. Aardvark 

Assocs., 942 F.2d 189 (3d Cir. 1991) (predicting that the 

Pennsylvania Supreme Court would adopt the reasoning of Lower 

Paxon Township v. United States Fidelity & Guaranty Co., 557 A.2d 

393, 403 (Pa. Super. Ct. 1989) that held the insured had the 

burden of proving the allegations in the complaint fell within a 

"sudden and accidental" exception to a pollution exclusion); 

Fischer & Porter Co. v. Liberty Mut. Ins. Co., 656 F.Supp. 132, 

140 (E.D. Pa. 1986) (insured has burden to prove "sudden and 

accidental" exception). If the insured is successful in 

demonstrating that coverage is not necessarily excluded by the 

facts averred in the complaint, the insurer is required to defend 

the underlying suit. 

 We recognize that the rule permitting the introduction 

of evidence to show that an exception to an exclusion applies, 

while disallowing evidence to show that an exclusion applies 

appears to be one-sided. This construction against the insurer 

and in favor of the insured, however, is consistent with general 

insurance law principles and, in particular, the Pennsylvania 

rule that requires only a "potential" of coverage of the 

allegations in the complaint for the duty to defend to be 

triggered. 

 We conclude that the cases cited by Aetna do not take 

this case outside the general Pennsylvania duty to defend rule. 

On that premise we agree with the district court that Aetna had a 

duty to defend. 

II. ACTION AGAINST HARTFORD 
9 

 Air Products also instituted a diversity action under 

Pennsylvania law seeking a declaratory judgment against Hartford 

Accident and Indemnity Company ("Hartford"). Hartford was its 

insurer from June 1, 1953 to September 30, 1972. Air Products 

sought a declaration that Hartford breached its duty to defend it 

in underlying actions based on employee exposure to Air Products' 

welding rods during the period of its coverage. 

 Hartford essentially takes the same position as Aetna 

on the duty to defend issue. As we said in that case, Aetna's 

position is contrary to Pennsylvania law covering the duty to 

defend here. If Pennsylvania law is to be changed, it must be 

for the Supreme Court of Pennsylvania to do so. Again, we affirm 

the district court on this claim. 

III. INDEMNITY 

 The judgment awarded Air Products against Hartford 

included a sum to indemnify Air Products for amounts it paid to 

settle underlying actions. Hartford seems to argue that even if 

it had a duty to defend, as we have found, any obligation to 

indemnify was negated by the summary judgment record. The short 

answer is that on this record the district court found there was 

an issue of material fact and thus properly denied summary 

judgment. 

 The position of Aetna on the indemnification issue is 

far from pellucid. It is not clear why it is entitled to advance 

this issue here when the judgment appealed contains no obligation 

on Aetna's part to indemnify Air Products. In any event, if its 

argument is based on some protective basis or otherwise, the 
10 

answer here is that there is no basis on the record before us to 

modify the judgment unless it impacts on the judgment. 

 IV. APPORTIONMENT OF DEFENSE AND INDEMNITY COSTS 

 Because two policies were triggered by the pre-1962 

welding rod claims, allocation of the defense and indemnity costs 

had to be determined. The district court relied on the decision 

of the Philadelphia Court of Common Pleas in J.H. France 

Refractories Co.v. Allstate Ins. Co., No. 3933 (Phila. Ct. C.P. 

Apr. 18, 1986) ("France I")4 for its determination. It stated 

that France I "constitute[d] the best statement of Pennsylvania 

law concerning the designation of a triggered policy for coverage 

in a particular underlying action . . . ." Air Prods., 707 F. 

Supp. at 769. 

 The district court adopted the "chronological and 

seriatim" method of allocation discussed in France I. Under this 

method, the first policy triggered must defend and indemnify the 

insured until the policy limit is reached. The next-in-time 

policy is then obligated, and so forth until the policies are 

exhausted or until the insured is fully reimbursed. 

 The Supreme Court of Pennsylvania overruled the 

chronological and seriatim method of allocation in its decision 

in J.H. France Refractories Co. v. Allstate Ins. Co. ("France 

III"), 626 A.2d 502 (Pa. 1993), rev'g 578 A.2d 468 (Pa. Super. 

1990) ("France II"). Under France III, as the allocation applies 

 

4Vacated on jurisdictional grounds, 539 A.2d 1345 (Pa. Super. 

1988), rev'd, 555 A.2d 797 (Pa. 1989), on remand, 578 A.2d 468 

(Pa. Super. 1990) ("France II"), aff'd in part, rev'd in part, 

626 A.2d 502 (Pa. 1993) ("France III"). 
11 

to the duty to indemnify, if more than one policy is triggered, 

the insured "should be free to select the policy or policies 

under which it is to be indemnified." Id. at 508. When the 

policy limits of the chosen policy are exhausted, then the 

insured is entitled to choose again from the triggered policies 

and continue to do so until fully indemnified for the claims. In 

regard to the allocation of the liability associated with the 

duty to defend, the Supreme Court held that the insurers have the 

right to select which of the insurers will undertake a defense. 

If the insurers cannot decide, then the insured may designate 

which insurer it wishes to have defend the claims. Id. at 510. 

 Hartford and Aetna argue that this case should be 

remanded to the district court for reconsideration in light of 

the intervening Pennsylvania Supreme Court decision in France 

III. We agree that a federal court exercising diversity 

jurisdiction is bound to follow the law as decided by the highest 

court of the state even if it has changed during the pendency of 

the federal action. Vandenbark v. Owens-Illinois Glass Co., 311 

U.S. 538, 543 (1941). The district court's order allocating 

costs relied on a statement of Pennsylvania law that has since 

been overruled by an intervening decision of the Supreme Court of 

Pennsylvania. The pertinent provisions of the district court's 

order will be vacated and the case remanded so that the district 

court can reconsider its order in light of France III. 

 V. CONCLUSION 

 The order of the district court will be affirmed to the 

extent that it finds that Hartford and Aetna had a duty to 
12 

defend. The order of the district court will be vacated and 

remanded to the district court to the extent it apportions 

defense costs and, if appropriate, indemnity costs so that they 

may be determined in accordance with France III.