1994 Decisions

Opinions of the United

States Court of Appeals

for the Third Circuit

11-29-1994

T&N, PLC v. PA Insur. Guar. Assn.

Precedential or Non-Precedential:

Docket 93-2011

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Recommended Citation

"T&N, PLC v. PA Insur. Guar. Assn." (1994). 1994 Decisions. Paper 203.

http://digitalcommons.law.villanova.edu/thirdcircuit_1994/203
 UNITED STATES COURT OF APPEALS 

 FOR THE THIRD CIRCUIT 

 ___________ 

 Nos. 93-2011 and 93-2012 

 ___________ 

 T&N, plc, 

 Appellant/Cross-Appellee

 vs. 

 PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION 

 Appellee/Cross-Appellant

 ___________ 

 Appeal from the United States District Court 

 for the Eastern District of Pennsylvania 

 (D.C. Civ. No. 90-cv-04946) 

 ___________ 

 

Argued 

 June 6, 1994 

 Before: MANSMANN, ALITO and ROSENN, Circuit Judges. 

 (Filed November 29, 1994) 

 ___________ 

Mark F. Rosenberg, Esquire 

Philip L. Graham, Jr., Esquire (ARGUED) 

Tariq Mundiya, Esquire 

Sullivan & Cromwell 

125 Broad Street 

New York, New York 10004 

Richard L. Berkman, Esquire 

William R. Spade, Jr., Esquire 

Dechert, Price & Rhoads 

1717 Arch Street 

4000 Bell Atlantic Tower 

Philadelphia, Pennsylvania 19103 

 COUNSEL FOR APPELLANT/CROSS-APPELLEE 

Lise Luborsky, Esquire 

Joseph M. Hankins, Esquire (ARGUED) 

Britt, Hankins, Schaible & 

 Moughan 

Two Penn Center Plaza 

Suite 515 
Philadelphia, PA 19102 

 COUNSEL FOR APPELLEE/CROSS-APPELLANT 

 ___________ 

 OPINION OF THE COURT 

 __________ 

MANSMANN, Circuit Judge. 

 The Pennsylvania Insurance Guaranty Association 

("PIGA") is an association of independent property and casualty 

insurers within Pennsylvania, created by The Pennsylvania 

Insurance Guaranty Act, 40 Pa. Cons. Stat. Ann. § 1701 et seq. 

(1970) for the purpose of providing a means of relatively prompt 

payment of covered claims in the stead of an insolvent insurer. 

Membership in PIGA is required before an insurer is authorized to 

write insurance policies within Pennsylvania. A "covered claim" 

under the Act must be the claim of a Pennsylvania "resident" or 

must pertain to property permanently located in Pennsylvania. 

 In this interlocutory appeal arising out of multiple 

claims seeking multi-millions of dollars in asbestos personal 

injury damages, T&N, plc, an English corporation with its 

principal place of business in England, seeks to recover from 

PIGA over $5 million under the terms of a settlement agreement 

with the American Mutual Liability Insurance Company. American 

Mutual is the insolvent insurer of T&N's now dissolved 

Pennsylvania asbestos manufacturing subsidiary, the Keasbey and 

Mattison Company. Since Keasbey's dissolution, T&N has been the 

target of thousands of claims brought by individuals alleging 

bodily injury and/or property damage caused by Keasbey's 
asbestos-containing products. Following an action which T&N 

commenced against American Mutual in the federal district court, 

T&N and American Mutual negotiated a settlement agreement which 

bound American Mutual to pay T&N a certain sum under the Keasbey 

policies. When American Mutual defaulted and was adjudged 

insolvent, T&N commenced this action against PIGA. 

 We must decide whether T&N's claim based on the terms 

of the settlement agreement is deemed to have arisen under 

American Mutual's property and casualty insurance policy so as to 

fall within the scope of covered claims under the Act, or whether 

the agreement served to extinguish the Keasbey policies. We must 

also decide whether T&N's claim satisfies the residency 

requirement of the Act, either by virtue of Keasbey's 

Pennsylvania residency while it was still viable, T&N's alleged 

alter ego relationship with Keasbey, and/or by T&N's direct 

Pennsylvania contacts. We must further decide the merits of 

T&N's assertion that recovery from PIGA is authorized to the 

extent that the underlying personal injury claimants are 

Pennsylvania residents. Finally, we must decide whether T&N has 

a potential claim against PIGA for claims arising from the loss 

or liability to any property permanently situated in 

Pennsylvania. 

 We conclude that the settlement agreement did indeed 

arise under the insurance policies, and hence may support a 

covered claim. We also conclude that T&N may have a viable 

covered claim with respect to affected property, but that it does 

not otherwise meet the residency requirements of the Act. We 
hold, however, that because the settlement agreement encompassed 

all of T&N's claims against the insurance company, T&N has only 

one potential covered claim which is subject to the $300,000 

limit under the Act. 

 I. 

 Keasbey and Mattison Company was a Pennsylvania 

corporation with its principal place of business in Pennsylvania 

and which manufactured asbestos-containing products from the 

early 1930's until 1967. Keasbey was the named insured on 

standard liability polices issued by American Mutual Liability 

Insurance Company from at least April 1, 1946 through October 1, 

1965. The policies provided primary coverage for asbestos and 

other latent disease product liability claims. In 1962, Keasbey 

sold its assets and filed for dissolution under Pennsylvania law. 

The dissolution became final in 1967. 

 T&N, plc, is a corporation organized under the laws of 

England and having its principal place of business in England. 

From 1934 until 1938, T&N owned the majority of Keasbey's stock. 

From 1938 until Keasbey's dissolution, T&N owned one hundred 

percent of Keasbey's stock either directly or indirectly. 

 Beginning in 1978, T&N was sued by thousands of 

individuals who alleged that since T&N was the sole shareholder 

of Keasbey, it was liable to them for the bodily injury they had 

suffered due to their exposure to asbestos. As a result, in 1982 

T&N filed a declaratory judgment action against American Mutual 

in the United States District Court for the District of Columbia, 
seeking coverage for over 1,000 asbestos claims. With respect to 

seven selected asbestos cases, the district court entered partial 

summary judgment in favor of T&N. It found that due to its 

status as a shareholder of Keasbey, T&N was an additional insured 

under the policies which were issued to Keasbey. The district 

court then directed the parties to attempt to reach an agreement 

regarding the amount of damages T&N was entitled to receive. 

 Subsequently, T&N and American Mutual entered into a 

settlement agreement which provided in pertinent part: 

 2. This Agreement is intended to confer rights 

 and benefits only upon T&N and American Mutual, 

 and is not intended to confer any right or benefit 

 upon any other person. No person other than T&N 

 or American Mutual shall have any legally 

 enforceable right under this Agreement. All 

 rights of action for any breach of this Agreement 

 are hereby reserved to T&N and American Mutual. 

 5. This Agreement is the entire agreement 

 between T&N and American Mutual. All antecedent 

 or contemporaneous extrinsic representations and 

 warranties made in the negotiation and preparation 

 of this Agreement are intended to be merged in the 

 Agreement and of no further effect. 

 

 6. For the purposes of resolving their dispute 

 American Mutual and T&N agree that the limits of 

 liability for all Keasbey policies shall be a total 

 of 1. 

 7. American Mutual shall pay to T&N the aforesaid 

 limits of all Keasbey policies . . . as well as a 

 portion of T&N's defense costs. . . . 

 8. Upon execution of this Agreement, American 

 Mutual shall be considered to have no further 

 duties or obligations based upon, arising out of 

 

1. The district court deleted the amount from the opinion, 

stating that because the settlement was filed under seal, there 

was no valid reason to disclose the amount. 
 or related to any policy of insurance issued 

 to Keasbey by American Mutual and all such 

 policies shall be considered exhausted, null and 

 void and of no further force or effect. 

 (District Court Opinion dated May 28, 1992, pp.3-4) 

 T&N alleges that American Mutual defaulted on this 

agreement because it failed to pay installments which were due on 

January 3, 1989 and January 4, 1990. In an unrelated matter, on 

March 9, 1989, the Massachusetts Supreme Judicial Court found 

that American Mutual was insolvent, appointed a permanent 

receiver, and ordered that the company be liquidated. 

 On July 30, 1990, T&N filed a complaint in the United 

States District Court for the Eastern District of Pennsylvania, 

seeking damages from PIGA under the Pennsylvania Insurance 

Guaranty Act because the Association failed to assume American 

Mutual's payment obligations under the settlement agreement2 and 

under the terms of the actual insurance policies which were 

issued to Keasbey.3 

 It is undisputed that the Pennsylvania Insurance 

Guaranty Act and the Association were established in response to 

the social harms which result from insurance insolvencies. Sands 

v. Pennsylvania Insurance Guaranty Association, 283 Pa. Super. 

217, 423 A.2d 1224 (1980). Every property and casualty insurance 

carrier in Pennsylvania is a member of PIGA. Indeed, membership 

 

2. T&N is seeking to obtain the balance which remains due 

under the settlement agreement. 

3. T&N also requested punitive damages for the bad faith 

denial of its claims. 
in PIGA is a condition of an insurer's ability to write insurance 

policies in Pennsylvania. One of the purposes of the Act is to: 

 (1) Provide a means for the payment of covered 

 claims under certain property and casualty 

 insurance policies, to avoid excessive delay 

 in the payment of such claims, and to avoid 

 financial loss to claimants or policyholders 

 as a result of the insolvency of an insurer . . . . 

 40 Pa. Cons. Stat Ann. § 1701.102. 

 By order entered May 29, 1992, the district court found 

that the settlement agreement is a matter which "arises under" 

the insurance policies issued by American Mutual as that phrase 

is utilized in section 1701.103(5)(a) of the Act. The court 

denied summary judgment with respect to the other aspects of 

Count I without prejudice to renewal after the completion of 

discovery. Summary judgment was granted in favor of PIGA with 

respect to T&N's claims which were based on the insurance 

policies because the settlement agreement nullified the policies. 

PIGA's motion for summary judgment on the bad faith claim was 

also denied without prejudice to renewal after the completion of 

discovery. 

 After discovery was completed, each party filed a 

motion for summary judgment. By opinion and order entered May 

27, 1993, the district court held in pertinent part that while 

T&N was not a resident of Pennsylvania and that Keasbey's 

residence was irrelevant, T&N could rely on the residency of its 

underlying claimants and the right of those claimants to bring a 

claim against T&N to meet the residency requirement of the Act. 

However, PIGA would only be liable if the underlying claimants 
were Pennsylvania residents at the time of the insured event4 or 

if the claims were for losses to property which was permanently 

located in Pennsylvania and the claims would have been covered by 

a Keasbey policy. If the underlying claimant changed residence 

during the time between exposure and manifestation and a policy 

was in effect, PIGA's liability was to be prorated based on the 

portion of the time the claimant lived in Pennsylvania during 

that period. To ensure that recovery would be so limited, the 

district court established an analytic framework to determine the 

extent of PIGA's liability. 

 By order entered September 10, 1993, the district court 

certified the 1992 and 1993 orders for interlocutory appeal, 

specifically certifying seven questions for our review.5 By 

 

4. The district court defined the insured event as the 

period from exposure to asbestos to the claimant's manifestation 

of an asbestos-related disease. 

5. The questions which were certified are: 

 1) Did the District Court err in holding that the 

 settlement agreement arose out of insurance 

 policies? 

 2) Did the District Court err in holding that 

 Keasbey's residence was not relevant under 

 Section § 1701.103(5)(a)(i)? 

 3) Did the District Court err in holding that 

 T&N was not a resident of Pennsylvania? 

 4) Did the District Court err in holding that 

 T&N could rely on the claims represented in the 

 settlement agreement and the residence of the 

 underlying claimants to meet 

the residency 

requirement of the Act? 

 5) Did the District Court err in holding that T&N 
order dated October 13, 1993, we granted the petitions for leave 

to appeal pursuant to 28 U.S.C. § 1292(b). For purposes of our 

review we have grouped the seven certified questions into three 

main issues: (1) whether T&N has a covered claim; (2) if T&N does 

have a covered claim, whether it has only one claim or a claim 

for each of the underlying asbestos claimants; and (3) if T&N 

does have a covered claim, whether the analytical framework 

established by the district court was appropriate. Because we 

determine that T&N does not have a covered claim under the 

statute except for property damage and that only one claim is 

implicated, we need not reach question 3.6

(..continued) 

 could rely on the claims represented in the 

 settlement agreement and the location of property 

 which sustained loss to meet the residency 

 requirement of the Act? 

 6) Did the District Court err in holding that the 

 $299,000 limit for recovery applied to each of 

 the underlying claims? 

 7) Did the District Court err in holding that PIGA's 

 liability for defense costs in the settlement 

 agreement was the smaller of the actual individual 

 amount or prorated amount of the costs? 

 (District Court's Order entered September 10, 1993) 

6. Federal courts sitting in diversity "must apply the 

substantive law of the state whose laws govern the action." 

Robertson v. Allied Signal, Inc., 914 F.2d 360, 378 (3d Cir. 

1990) (citing Erie R.R. v. Tompkins, 304 U.S. 64 (1938). The 

parties agreed that Pennsylvania substantive law applies to this 

action. 
II.

 A covered claim is defined in relevant part in 40 Pa. 

Cons. Stat. Ann. § 1701.103 as: 

 5(a) "Covered Claim" means an unpaid claim, 

 including a claim for unearned premiums, which 

 arises under a property and casualty insurance 

 policy of an insolvent insurer and is: 

 

 (i) The claim of a person who at the time of 

the insured event resulting in loss or liability 

was a resident of the Commonwealth, or 

 (ii) A claim arising from an insured event 

resulting in loss or liability to property which 

was permanently situated in this Commonwealth 

 . . . . 

* * * 

 Thus, an essential element of a covered claim is that 

it arise out of an insurance policy. PIGA argues that T&N's 

claim arises out of the settlement agreement, not out of the 

insurance policies, because the insurance policies were nullified 

upon the execution of the settlement agreement. Therefore, T&N's 

claim should not be covered by the Act. 

 It does not appear that any Pennsylvania court has 

addressed whether a settlement agreement which is entered into in 

connection with an insurance policy could support a covered claim 

under the Act. Courts in other states, however, have found that 

disputes arising from settlement agreements do constitute covered 

claims under their insurance guaranty acts. See Buggae v. Yellow 

Checker Cab Co., 623 So.2d 906 (La. App. 1993); Lastie v. Warden, 

611 So.2d 721 (La. App. 1992), cert. denied, 614 So.2d 64 (La. 

1993); Betancourt v. Arizona Property & Casualty Insurance Fund, 

170 Ariz. 296, 823 P.2d 1304 (1991); Thornock v. Pack River 
Management Co., 790 F.Supp. 1014 (D. Mont. 1990) aff'd in part 

and rev'd in part, 942 F.2d 794 (9th Cir. 1991); and London v. 

Florida Insurance Guaranty Association, 486 So.2d 56 (Fla. App. 

1986). PIGA argues that these cases are not dispositive because 

the courts were not faced with the settlement of a coverage 

dispute, the settlement agreement did not nullify the underlying 

insurance policies, the settlement agreement did not act as a 

novation, and the cases did not involve a non-resident insured 

who was seeking recovery based on underlying claimants who had no 

rights under the settlement agreement. We do not find these 

arguments to be persuasive. 

 The settlement agreement between T&N and American 

Mutual would never have come into being if not for the insurance 

policies. The amount of money which was to be paid under the 

settlement agreement represented the total of the policy limits 

on all of the insurance policies.7 As a result, we find that the 

settlement agreement arose under the insurance policies and may 

support a covered claim provided that all of the other 

requirements of the Act are met. To hold otherwise would 

discourage parties from entering into settlement agreements.8 

Thus, the district court did not err in holding that the 

settlement agreement arose under an insurance policy. 

 

7. A portion of T&N's defense costs was also represented 

in the agreement. 

8. We also note that under section 1701.201(b)(1)(iv) of 

the Act, PIGA may review settlements to determine the extent to 

which those settlements should be contested. 
 

III. 

 Our next question then is whether T&N is, or can be 

considered to be, a Pennsylvania resident. Such a determination 

is necessary because only Pennsylvania residents may assert a 

covered claim under the Act. See § 1701.103(5)(a)(i). 

Unfortunately, "resident" is not defined in the Act and it 

appears that no Pennsylvania court has yet interpreted the term. 

T&N suggests three methods by which it meets the residency 

requirement of the Act: (A) it can use the residence of its 

underlying claimants, (B) it can use Keasbey's residence, and (C) 

it can be considered a resident of Pennsylvania. 

A. 

 The district court held that while T&N was not a 

Pennsylvania resident and Keasbey's residence was irrelevant, T&N 

could use the residence of the underlying claimants to meet the 

residency requirement of the Act. As a result, to the extent 

that T&N could show that an underlying claimant was a 

Pennsylvania resident at the time of the insured event, it would 

have a covered claim. T&N's recovery would also have to be 

prorated if an underlying claimant changed his or her residence 

during the relevant period. 

 The district court grounded its decision to permit T&N 

to use the residence of its underlying claimants on the fact that 

the definition of "person" under the Act includes a claimant. As 

a result, underlying claimants (tort victims) can have covered 
claims under the Act. The district court then looked at section 

1701.503(b) of the Act which states that, except in the case of a 

first party claim for damage to property which has a permanent 

location, if a person has a claim which is covered by more than 

one guaranty association, he or she must seek recovery first from 

the association located where the insured resides. The district 

court then reasoned that because of the interaction between the 

definition of "person" and section 1701.503(b), a non-resident 

claimant could rely on both an insured tortfeasor's residence and 

the right to make a claim in order to come within the Act. 

Otherwise, a non-resident claimant who was seeking recovery from 

the association where the insurer resides would not be able to 

meet the residency requirement of the Act. 

 While the situation presented here is the opposite of 

that described above, the district court stated that the analysis 

was similar. Under section 1701.503(b), a non-resident insured 

did not have to rely on the residence and claims of the 

underlying claimants because the insured's residence determined 

where recovery was to be sought in the first instance. However, 

the fact that section 1701.503(b) indicated that a person, who 

was defined as a policyholder or claimant, may have a claim which 

was covered under more than one guaranty association suggested 

that in certain situations, a non-resident insured could rely on 

the residence of the underlying claimants and the right to make a 

claim to meet the residency requirement. This interpretation 

ensured that the underlying claimants would be able to recover 

damages from the insured. 
 While the district court noted that these claimants 

also have a right to proceed against the guaranty association, it 

stated that in cases where the insured is unable to recover from 

its own guaranty association9, it would be unfair not to 

interpret section 1701.103(5) to allow the insured to rely on the 

residence of the underlying claimants. It also noted that such a 

result would discourage settlements, would lead to multiple suits 

which would delay payments to Pennsylvania claimants, and could 

encourage non-resident insureds to engage in delaying tactics to 

force the tort victims to bring actions against PIGA instead of 

continuing their suits against the insured. 

 We disagree with the district court's analysis. The 

purpose of the Act is clearly to protect Pennsylvania residents. 

If the underlying Pennsylvania claimants can proceed against PIGA 

to recover for their losses, their rights are protected; they 

will not suffer any harm from the insured's inability to pay 

them. Therefore, giving the insured the ability to rely on the 

underlying claimants' residence does not provide the underlying 

Pennsylvania claimants with money they would not have received if 

the insured was not permitted to recover under the Act. The 

district court's analysis does not provide the underlying 

Pennsylvania claimants with any additional protection. Rather, 

it merely allows a non-resident to make a claim against the Act. 

Such a result violates the intent of the Act which is to protect 

 

9. England apparently does not have an insurance guaranty 

association. 
Pennsylvania residents. While it is unfortunate that T&N 

apparently does not have a guaranty association which it can 

approach for relief, this does not affect Pennsylvania and PIGA 

should not be forced to pay T&N's claim based on this reason 

alone. 

 We note as well that PIGA is authorized to pay 

"claims". Therefore, the claims that are relevant are those that 

PIGA is being asked to pay. Since T&N is the one with the claim, 

its residence is the one which should be examined. As a result, 

T&N must be the one who was a resident of Pennsylvania at the 

time of the insured event which resulted in loss or liability. 

At the time of the insured event, T&N was a resident of England. 

Thus, we conclude that T&N cannot claim recovery from the 

Association by adverting to the Pennsylvania residency of its 

underlying claimants. 

B. 

 With respect to whether T&N has a covered claim in its 

own right, T&N first argues that the district court erred in 

finding that Keasbey's residence was irrelevant. In T&N's view, 

Keasbey's residence should be determinative because it was a 

Pennsylvania resident, the actions leading up to the asbestos 

claims took place in Pennsylvania, Keasbey's insurance policies 

were issued in Pennsylvania and PIGA would have had to pay the 

claim if Keasbey had not been dissolved. 

 The question of whether Keasbey's residence is relevant 

depends on what interpretation is given to the phrase, ". . . who 

at the time of the insured event resulting in loss or liability 
was a resident. . . ." T&N argues that we should look at 

residency at the time of the insured event. At that point in 

time, Keasbey was still in existence and was a Pennsylvania 

resident. Therefore, T&N asserts, Keasbey's residence should be 

sufficient to bring T&N within the Act. 

 We do not find this argument to be persuasive. The use 

of the word "resulting" indicates that a loss or determination of 

liability must occur before a covered claim will exist. If the 

legislature had intended to provide coverage for persons who had 

not yet incurred a loss or liability at the time of the insured 

event, it could have so provided by using a phrase such as "who 

at the time of the insured event which may give rise to a loss or 

liability was a resident...." The fact that it did not do so 

indicates that an actual loss or liability has to be suffered 

before a person may have a covered claim. Therefore, unless an 

actual loss or liability is incurred, the person's residence is 

irrelevant for purposes of the Act. 

 The asbestos claims did not begin until 1978. After 

1969, no claims could be maintained against Keasbey due to 

Pennsylvania's corporate dissolution statute.10 Keasbey had not 

sustained any loss or liability by 1969. Since Keasbey has not 

suffered any loss or liability, it cannot have a covered claim 

under the Act and its residence is irrelevant. 

 

10. 15 P.S. § 2111 (Purdon 1967), repealed and

substantially re-enacted by 15 Pa. Cons. Stat. Ann. §1979 (1992). 
 Again, we note that since PIGA is authorized to pay 

covered claims, the claims which are significant are those which 

PIGA is being asked to pay. Therefore, since Keasbey is not 

presenting a claim, its residence is irrelevant. 

C.

 Finally, T&N argues that it can be viewed as a 

Pennsylvania resident for purposes of the Act. As mentioned 

above, it does not appear that any Pennsylvania court has 

attempted to interpret the meaning of "resident" with respect to 

the Act. In Pennsylvania Insurance Guaranty Association v. 

Charter Abstract Corporation, 790 F. Supp. 82 (E.D. Pa. 1992), 

the district court held that a corporation could have only one 

residence. Recognizing that an individual person could only have 

one residence, the court could not ascertain why a corporation 

should be treated differently from an individual. Thus, 

residence would be determined by either the state of 

incorporation or the principal place of business. The ultimate 

issue of which location was to be used was not reached because 

the corporation in question did not meet either test. See also

Kroblin Refrigerated Xpress v. Iowa Insurance Guaranty 

Association, 461 N.W.2d 175 (Iowa 1990). 

 We find this analysis to be persuasive. It is 

undisputed that T&N was incorporated in England and has its 

principal place of business in England. As a result, we find 

that it is not a Pennsylvania resident under the Act. 
 T&N argues that since it is subject to jurisdiction in 

Pennsylvania, it should be considered a Pennsylvania resident. 

However, the exercise of jurisdiction is not limited to those who 

are residents of the state which is attempting to assert 

jurisdiction. As a result, if residence were connected to 

jurisdiction, it would increase the number of guaranty 

associations which could be liable, and lead to disputes 

regarding which association should be liable for the payments. 

This would defeat one of the purposes of the Act which is to 

avoid delays in payment. 

 T&N also argues that since the underlying claimants 

have brought suit against it because it is allegedly the alter 

ego of Keasbey, T&N should be able to use Keasbey's residence to 

come within the Act. It is unclear whether any court has found 

that T&N is the alter ego of Keasbey to such an extent that the 

corporate veil should be pierced and that T&N should be held 

liable for Keasbey's actions.11 However, the Court of Appeals 

 

11. Several courts have addressed the relationship between 

T&N and Keasbey. See Ward v. Armstrong World Industries, Inc., 

677 F. Supp. 1092 (D. Colo. 1988) (T&N is neither the alter ego 

nor the successor of Keasbey. T&N only owned Keasbey's stock. 

After the dissolution, Keasbey's assets were sold to companies 

other than T&N and T&N did not continue in any of Keasbey's 

product lines.); Kacprzycki v. A.C.&S., Inc., No. 88-34, 1990 

U.S. Dist. Lexis 16552 (D. Del. October 31, 1990) (T&N was not 

the alter ego of Keasbey and could not be held liable for damages 

allegedly caused by Keasbey); Watkins v. Turner & Newall Ltd., 

Nos. 84-1742-17 & 86-0087-17, 1988 U.S. Dist. Lexis 8778 (D. Ga. 

1988) (T&N is not the alter ego of Keasbey and jurisdiction 

cannot be found over T&N based on Keasbey's presence in the forum 

state); and Colcord v. Armstrong World Industries, Inc., No. 84-

912 (D. Colo. May 13, 1985) (plaintiff had failed to establish a 

prima facie showing that T&N so dominated and controlled Keasbey 

that the corporate veil should be pierced or that jurisdiction 
for the Fifth Circuit specifically found in Hargrave v. 

Fibreboard, Corp., 710 F.2d 1154 (5th Cir. 1983) that T&N's 

relationship to Keasbey was not sufficient for Texas to have 

jurisdiction over T&N through Keasbey.12 The Court also found 

that T&N was not the alter ego of Keasbey.13 

(..continued) 

should be found over T&N due to Keasbey's presence in the forum). 

But see City of New York v. AAER Sprayed Insulations Inc., (N.Y. 

Sup. Ct., November 1, 1990) (T&N's motion for partial summary 

judgment with respect to Keasbey's products on the basis that 

Keasbey was not T&N's alter ego denied); City of New York v. AAER 

Sprayed Insulations, 182 A.D.2d 516, 583 NYS.2d 911 (N.Y. App. 

Div., April 16, 1992) (affirming January 11, 1991 lower court 

decision denying T&N's motion for summary judgment because there 

were material issues of fact regarding whether T&N is the alter 

ego of Keasbey and whether T&N suppressed knowledge regarding the 

hazards of asbestos to avoid having to place warnings on its 

product) and Scharold v. GAF Corp., No. C-1-84-1062 (S.D. Ohio 

January 10, 1985) (motion to dismiss based on lack of personal 

jurisdiction denied because it was unclear that T&N was not 

Keasbey's alter ego and it was premature to rule on that 

question). 

 Three other unreported cases from the Southern District 

of Ohio reach the same result. See Herper v. GAF Corporation, 

No. C-1-84-1028 (S.D. Ohio February 14, 1985), William & Letcher 

v. Pfizer, Inc., No. C-1-84-515 (S.D. Ohio February 15, 1985) and 

Lloyd v. Pfizer, Inc., No. C-1-84-397 (S.D. Ohio February 15, 

1985). However, it should be noted that these cases did not 

engage in a separate analysis of the question. Rather, they 

entered orders denying the motions to dismiss based on Scharold

and Bowman v. Armstrong World Industries, No. C-2-81-1492 (S.D. 

Ohio, August 8, 1994), a decision which was also relied on by the 

Scharold court. In addition, a copy of the Scharold opinion was 

attached to each of the orders. 

12. It should be noted that Scharold referred to Hargrave

and cited Bowman which held that Hargrave was distinguishable 

because the law in Ohio was that unless there is a hearing 

regarding jurisdiction, a plaintiff only needs to make a prima 

facie showing of jurisdiction. A hearing on jurisdiction took 

place in Hargrave but apparently did not take place in Scharold

or Bowman. 

13. A successor liability claim was also brought against 

T&N but the Court fount that it had been waived. 
 In addition, T&N alleged in the complaint it filed in 

the D.C. District Court that it was being sued because it was the 

former stockholder of Keasbey and exercised such control over 

Keasbey that Keasbey was T&N's alter-ego. The district court 

found that T&N was an additional insured under Keasbey's 

insurance policies because the definition of an "insured" under 

the policies included stockholders. Therefore, the district 

court's finding was based on an interpretation of the policies, 

rather than a determination that Keasbey was T&N's alter ego. 

 Finally, the record on appeal does not provide any 

indication regarding the nature of the relationship between T&N 

and Keasbey beyond the fact that T&N was the majority and then 

the sole shareholder of Keasbey. In its brief, T&N does not 

present any arguments establishing the existence of an alter ego 

relationship. Rather, it merely states that some of the 

complaints which have been filed against it allege that it is 

liable because of an alter ego relationship between it and 

Keasbey. In addition, there is no information regarding what 

happened after the sale - i.e., how the money realized was 

distributed, whether T&N retained any liability for Keasbey's 

past conduct, etc. 

 Thus, we conclude that the district court did not err 

in holding that T&N was not itself a resident of Pennsylvania for 

purposes of asserting PIGA liability. 

IV. 
 We note that the Act does not limit recovery to 

persons. Recovery can also be made with respect to any property 

which is permanently located in Pennsylvania. Section 

1701.103(5)(a)(ii) provides: 

 (5)(a) "Covered claim" means an unpaid 

claim, including a claim for unearned 

premiums, which arises under a property and 

casualty insurance policy of an insolvent 

insurer and is: 

* * * 

 (ii) A claim arising from an insured 

event resulting in loss or liability to 

property which was permanently situated in 

this Commonwealth. 

 Unlike section 1701.103(5)(a)(i), T&N does not have to 

be a resident of Pennsylvania to recover under section 

1701.103(5)(a)(ii) for damage to property permanently located in 

Pennsylvania. To the extent that T&N's claims are based on such 

property, PIGA will be liable. The question of whether any such 

property exists should be considered by the district court. If 

the district court finds such property, the court must further 

determine whether an unpaid claim is present with respect to that 

property, in light of any recovery which might have already 

transpired. The district court must consider whether permitting 

payment with respect to this property will result in a double 

payment, once to the property owner and once to T&N. Finally, 

the district court must scrutinize whether T&N's claim is 

properly characterized as arising out of a loss or liability to 

the property itself. In connection with this, the district court 

may consider whether the lack of payment is the result of the 
insolvency of the insurance company and its failure to pay the 

monies which remained due under the settlement agreement, and 

whether T&N's claim is thus transformed into a claim under 

section 1701.103(5)(a)(i) for which PIGA is only liable if the 

person bringing the claim is a Pennsylvania resident. 

V. 

 As we have found that T&N may have a covered claim with 

respect to property permanently located in Pennsylvania, we must 

turn to the question of the number of covered claims present. 

The Act states that the maximum which can be paid for a covered 

claim is $300,000 less a $100 deductible amount. PIGA argues 

that since T&N agreed to take a lump sum payment under the 

settlement agreement, it only has one covered claim which is 

subject to the $300,000 statutory limit less a $100 deductible.14 

T&N counters that the fact that it entered into one settlement 

agreement is not dispositive because it could have entered into 

separate settlement agreements for each of the underlying claims 

and/or insurance polices. To allow it to have only one claim 

because it settled numerous claims in one agreement would elevate 

form over substance and be contrary to the policy encouraging 

settlements. Finally, even if the underlying claims are not 

treated separately, T&N asserts that it is still entitled to 

recover the statutory limit for each insurance policy which was 

 

14. See § 1701.201(b)(i). 
issued by American Mutual. Again, it does not appear that any 

Pennsylvania court has addressed this question. 

 The district court based its finding that T&N had a 

separate covered claim for each of the underlying claimants on 

the Connecticut Supreme Court case of Connecticut Insurance 

Guaranty Association v. Union Carbide Corp., 217 Conn. 371, 585 

A.2d 1216 (1991). We find that such reliance was misplaced. 

 The Union Carbide case arose out of the 1984 disaster 

in Bhopal, India. Over 500,000 claims were brought against Union 

Carbide. The government of India assumed the right to prosecute 

all claims arising out of the disaster and all of the claims were 

consolidated into a single action. In February of 1989, Union 

Carbide and Union Carbide of India15 entered into a settlement 

with the Indian government. Union Carbide then approached its 

insurance companies for reimbursement of the payments it had made 

under the settlement agreement. Union Carbide's solvent insurers 

paid to the limits of their insurance polices. Three excess 

insurers whose policies provided for $32,500,000 in coverage 

became insolvent.16 Union Carbide then turned to the Connecticut 

Insurance Guaranty Association ("CIGA") for payment. 

 The question facing the Connecticut Supreme Court was 

whether Union Carbide had only one covered claim which was 

 

15. Union Carbide owned 50.9 percent of the stock in Union 

Carbide of India. 

16. Even if all of the insurers had paid the full amount of 

their coverage, Union Carbide would still have been responsible 

for $217,500,000 under the settlement agreement. 
subject to the $300,000 statutory limit or whether Union Carbide 

had a covered claim for each of the Bhopal victims who had been 

paid from non-insurance sources under the settlement agreement.17 

CIGA argued that a covered claim is a claim for indemnification 

under a liability policy, not the separate claims of the tort 

victims. As a result, Union Carbide had only six covered claims 

encompassing the six insurance policies which were issued by the 

insurance companies. The Supreme Court of Connecticut found that 

under Connecticut General Statute § 38-175, when an insurance 

company issued a policy, it became absolutely liable once a loss 

occurred under the policy. In addition, the statute also allowed 

a tort victim to proceed directly against the insurer if the 

victim had obtained a judgment against an insured that had not 

been satisfied within thirty days. In light of both of these 

factors, the court found that the Bhopal victims had a cause of 

action against the insolvent insurers in connection with the 

policies they had issued. In addition, under the Connecticut 

Insurance Guaranty Act, a covered claim included underlying 

claimants. The fact that the Government of India had taken 

control of all of the claims and consolidated them into a single 

action did not reduce Union Carbide's claim to a single claim. 

Rather, the statute which authorized the Indian government to 

consolidate claims created a procedural device which gave the 

government the power to represent the victims and did not 

 

17. Since it was undisputed that Union Carbide was a 

resident of Connecticut, residence was not an issue. 
diminish Union Carbide's right of indemnification. Consequently, 

the Connecticut court then affirmed the trial court's finding 

that the $300,000 limit applied to each of the underlying claims 

and that CIGA must pay the claims presented under the six 

insurance policies which were issued by the insolvent insurers.18 

 

 We find Union Carbide to be distinguishable. Union 

Carbide settled with the underlying claimants. The settlement 

agreement can thus be viewed as the embodiment of each claim 

which was filed against Union Carbide. However, in the present 

case, T&N settled with the insurance company. The settlement 

agreement is not the embodiment of the claims filed by the 

underlying claimants, as is demonstrated by the fact that 

American Mutual agreed to pay up to the policy limits on each of 

the policies it had issued.19 Payment was not related to the 

individual claims which had been filed. As a result, we find 

that in light of the fact that T&N entered into a single 

settlement agreement with American Mutual which encompassed all 

of its claims against the insurance company, it only has one 

covered claim which is subject to the $300,000 statutory limit. 

We do not believe that we are exalting form over substance 

because T&N agreed to the terms and the form of the agreement. 

 T&N also requests recovery for its defense costs. Upon 

 

18. The court also addressed other issues connected to this 

analysis which are not relevant here. 

19. In fact, under the terms of the agreement, only T&N and 

American Mutual have any rights under the agreement. 
remand the district court shall also address to what extent, if 

any, T&N may recover from PIGA for its defense costs. 

VI. 

 The orders of the district court which were certified 

to us are hereby affirmed in part and reversed in part. The 

matter is remanded to the district court for resolution of the 

property issue and the request for defense costs. Each party to 

bear its own costs. 
RE: T&N plc, Appellant v. PENNSYLVANIA INSURANCE GUARANTY 

 ASSOCIATION, Nos. 93-2011/2012 

_________________________________________________________________ 

ROSENN, Circuit Judge, dissenting. 

 Many persons who charged that T&N was the alter ego of 

its subsidiary, Keasbey and Mattison Company (Keasbey), and 

therefore responsible for bodily injuries they sustained due to 

asbestos exposure, sued T&N. T&N thereupon filed a declaratory 

judgment action against American Mutual in the United States 

District Court for the District of Columbia. T&N's claim arose 

out of a policy naming Keasbey as the insured, although Keasbey 

had dissolved in 1967 (Maj. Op. at 4) and American Mutual had 

written its last policy to Keasbey in 1965. The court found that 

T&N was an additional insured under the policy and directed the 

parties to attempt to reach a settlement. They did, and American 

Mutual agreed to pay T&N a significant sum of money, more than 

half of which has been paid. 

 The settlement agreement explicitly provided that 

American Mutual, upon the execution of the agreement, would not 

only have no further obligations "based upon, arising out of or 

related to any policy of insurance issued to Keasbey by American 

Mutual," but that all such policies shall be considered 

"exhausted, null and void and of no further force or effect." I 

cannot agree, therefore, that the plain language of that 

agreement, solemnly executed in settlement of then pending 
litigation in court, can be ignored. The settlement agreement 

constitutes a substituted contract, and, therefore, whether it 

initially had its genesis in the policies written by American 

Mutual can leave no lingering liability arising under those 

insurance policies. I therefore respectfully dissent. 

I. 

 I agree with the district court and the majority here 

that Keasbey's residence is irrelevant and that T&N is not a 

resident of Pennsylvania. (Maj. Op. at 7). The majority, 

however, concludes that the lack of residency does not bar T&N 

from recovery because the Act does not limit recovery to persons, 

and permits recovery with respect to property permanently located 

in Pennsylvania. Without any discussion at this point of the 

effect of the settlement agreement on any claim of T&N against 

American Mutual, the majority decides that if T&N's claim may be 

"properly characterized as arising out of a loss or liability to 

the property itself," the district court may find that PIGA is 

liable if the tort claimant is a Pennsylvania resident. 

 The majority appears to rationalize that if the 

original tort claimant was a permanent Pennsylvania resident who 

would have had a claim against T&N arising out of the asbestos 

condition of the resident's property, that in itself would 

suffice to permit T&N to recover, regardless of the settlement 

agreement between T&N and American Mutual. The majority offers 

no explanation and advances no reasons for disregarding the 
specific language of the settlement agreement which plainly 

states that (a) no rights or benefits were conferred upon any 

person except the parties to the agreement, and (b) all policies 

of insurance issued to Keasbey and all obligations arising out of 

or related to any policy of insurance to Keasbey by American 

Mutual were "exhausted, null and void and of no further force and 

effect" upon execution of the agreement. 

 The result of the majority's expansive rationalization 

is to make the tort claimants the fundament of T&N's claim and 

the springboard for purposes of T&N recovery; it completely 

obliterates the settlement agreement. Stated another way, the 

majority has turned back the clock sometime prior to the 

execution of the settlement agreement and treats the agreement as 

if it never existed. 

II. 

 A federal district court exercising diversity 

jurisdiction must apply the choice of law rules of the forum 

state. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 497 

(1941); American Air Filter Co. v. McNichol, 527 F.2d 1297, 1299 

n. 4 (3d Cir. 1975). Accordingly, we must apply Pennsylvania 

choice of law rules in this case. 

 Pennsylvania courts generally honor the intent of the 

contracting parties and enforce a choice of law provision in a 

contract. Smith v. Commonwealth Nat. Bank, 557 A.2d 775, 777 

(Pa. Super. 1989), appeal denied, 569 A.2d 1369 (Pa. 1990). The 
Pennsylvania courts have adopted section 187 of the Restatement 

(Second) Conflict of Laws which provides that: 

 (1) The law of the state chosen by the 

parties to govern their contractual rights 

and duties will be applied if the particular 

issue is one which the parties could have 

resolved by an explicit provision in their 

agreement directed to that issue. 

See e.g., Schifano v. Schifano, 471 A.2d 839, 843 n. 5 (Pa. 

Super. 1984). The settlement agreement contains a choice of law 

provision which provides "[t]his agreement shall be governed by 

the substantive law of the State of New York." Therefore, this 

court should apply New York substantive law to determine the 

character of the agreement. 

 A substituted contract is a novation and "[a]n existing 

claim can be instantly discharged by the substitution of a new 

executory agreement in its place." 6 Corbin on Contracts, § 1293 

(West. Pub. Co. 1962) (footnote omitted); Malanca v. Falstaff 

Brewing Co., 694 F.2d 182, 184 (9th Cir. 1982). Novation is the 

"[s]ubstitution of a new contract, debt or obligation for an 

existing one, between the same or different parties." Black's 

Law Dictionary, 6th Ed. Cent. Ed. 
 Under New York law,20 we are faced here with a classic 

novation and any suits by T&N must be based on the settlement 

agreement rather than the earlier insurance policies. In HealthChem Corp. v. Baker, 915 F.2d 805 (2d Cir. 1990), Health Chem 

Corp. sought a declaration that the settlement agreement 

negotiated with a former director was invalid and required 

renegotiation. The court of appeals, applying New York law, 

affirmed the district court's rejection of the corporation's 

complaint, and held that "[w]hen the parties to a contract enter 

into a new agreement that expressly supersedes the previous 

agreement, the previous agreement is extinguished, thereby 

reducing the remedy for breach to a suit on the new agreement." 

Id. at 811; Wigton v. Rosenthall, 747 F. Supp. 247 (S.D.N.Y. 

1990); Flaum v. Birnbaum, 120 App.Div.2d 193, 508 N.Y.S.2d 115 

(N.Y.A.D. 4 Dept. 1986). 

 There is a substituted contract or novation if: (1) 

there is a valid former contract, (2) the parties agree to a new 

contract, (3) the parties form a valid new contract, and (4) the 

parties intend to extinguish the old contract. Flaum v. 

Birnbaum, 120 App.Div.2d 193. In this case, all the elements of 

 

20. The Restatement (Second) of Contracts, § 280, treats a 

novation more narrowly than does New York and defines it as a 

substituted contract including as a party one who was neither the 

obligor not the obligee of the original duty. However, § 279 of 

the Restatement (Second) of Contracts provides: "A substituted 

contract is a contract that is itself accepted by the obligee in 

satisfaction of the obligor's existing duty." 
a novation are met: (1) there was a valid insurance contract, 

(2) the parties agreed to a new contract, the settlement 

agreement, (3) the agreement is a valid contract, and (4) the 

parties explicitly stated that the new contract extinguished the 

old contract upon execution of the agreement and would be of no 

further force and effect. The settlement agreement, therefore, 

extinguished any rights that T&N enjoyed under the original 

policy. "The substituted contract discharges the original duty 

and breach of the substituted contract by the obligor does not 

give the obligee a right to enforce the original duty." 

Restatement (Second) of Contracts, § 279(2). 

 T&N's argument that American Mutual's failure to 

fulfill the terms of the substituted contract revives the old 

insurance contracts is contrary to the clear law. T&N confuses 

novation with an executory accord without satisfaction. Cf.

Bandman v. Finn, 185 N.Y. 508, 79 N.E. 175 (C.A.N.Y. 1906). 

 It is the essence of an accord that the 

original duty is not satisfied until the 

accord is performed, a result that is 

sometimes suggested by use of the term 

"executory accord." 

Restatement (Second) of Contracts, § 281, comment a. It thus 

differs from a substituted contract "under which a promise of 

substituted performance is accepted in satisfaction of the 

original duty." Id. comment e. 

 In National American Corp. v. Fed. Republic of Nigeria, 

448 F. Supp. 622 (S.D.N.Y. 1978), aff'd, 597 F.2d 314 (2d Cir. 
1979), the court, applying New York law, distinguished an 

executory accord from a substitute contract. 

 An executory accord is, by definition, "an 

agreement that an existing claim will be 

discharged in the future by the rendition of 

a substituted performance." 6 Corbin, 

Contracts § 1269 at 75 (1962) (emphasis 

added) . . . In contrast, a substitute 

contract operates as its name implies -- as 

an immediate discharge and satisfaction of 

existing claims in return for the new 

contract, even though performance is to 

commence in the future. Should a breach 

later occur, the creditor is limited to his 

rights under the substitute agreement. 

Id. at 643 (citation omitted). 

Thus, under the settlement agreement here, the old contract is 

dead. The subsequent agreement extinguished the old one and the 

remedy for any breach thereof is under the superseding agreement. 

See Northville Inds. Corp. v. Fort Neck Oil Terms. Corp., 474 

N.Y.S. 2d 122, aff'd, 64 N.Y.2d 930, 488 N.Y.S.2d 648, 427 

N.E.12d 1102 (1985). Accordingly, the only remedy for a breach 

of the substituted contract is a suit on that contract. 

III. 

 Therefore, in response to the questions certified by 

the district court, I would hold as to question 4 that it erred 

in holding that T&N could rely on the underlying claims resolved 

in the settlement agreement, and the residence of the underlying 

claimants to meet the residency requirement of the Act. In 

response to question 5, I would similarly hold that it erred in 
holding that T&N could rely on the claims represented in the 

settlement agreement and the location of property which sustained 

loss to meet the residency requirement of the Act. Under my view 

of the case, there is no need to reach the issues raised in 

questions 6 and 7. I would answer the first three questions in 

the affirmative.