Opinion ID: 2975885
Heading Depth: 3
Heading Rank: 3

Heading: Defendant’s obligation to Plaintiff

Text: Thus far, we have reached two conclusions: 1) the burden of proving that the “sudden and accidental” exemption applies in this case rests with Plaintiff; and 2) the words “sudden and accidental” encompass both abruptness and unexpectedness. Given these two conclusions, we believe that the district court correctly determined that the March 31, 1972-78 insurance policies do not require Defendant to reimburse Plaintiff’s legal fees in the underlying lawsuit. The pollution exclusion provides that “this exclusion does not apply if such discharge . . . is sudden and accidental.” As a threshold matter, the parties disagree as to the meaning of the word “discharge.” Defendant argues that the “discharge” in this case occurred at the moment “the pollutants were placed into the waste pits,” (Defendant’s Br. 26.), while Plaintiff asserts that a “discharge” occurred only when the pollutants began to seep out of the waste pits. (Reply Br. 9.) As the district court correctly noted, however, this disagreement does not need to be resolved. Plaintiff does not assert, and the record does not support, a claim that the pollutants were suddenly 11 No. 07-5060 and accidentally placed in the waste pits. Indeed, it would be quite remarkable for Plaintiff to claim that the repeated dumping of waste oil in two clay-lined waste pits over the course of many years, was anything other than intentional. Similarly, if a “discharge” occurred only when the pollutants escaped from the waste pits, then the discharges which occurred in this case do not fall within the “sudden and accidental” exemption. As the policyholder carries the burden of proving that the escape of pollutants from the waste pits was sudden and accidental, Lower Paxton, 557 A.2d at 399, Plaintiff introduced significant amounts of extrinsic evidence regarding the circumstances of the toxic discharges from the two Superfund sites. While Plaintiff contends that this extrinsic evidence demonstrates that the discharges were abrupt and unexpected, we view Plaintiff’s evidence differently. Even viewing this evidence in the light most favorable to Plaintiff, a reasonable jury could only interpret it as proving that discharges from the two sites were frequent, continuous and highly predictable. According to a November 15, 1969 newspaper article introduced into evidence by Plaintiff, the U.S. Corps of Engineers determined that the South 8th Street site was flooded an average of over 62 days a year, causing the waste oil stored at that site to escape into the Mississippi River and the surrounding soil for over one-sixth of any given year. Similarly, a May 11, 1975 report introduced by Plaintiff shows that flooding during March of that year caused waste oil from the South 8th Street site to escape for four consecutive days, eventually finding its way into a nearby bayou. These news reports are corroborated by the deposition testimony of Larry Gurley, the operator of the South 8th Street site, who testified that the area was “constantly being flooded, and each time it rained, the flooding situation got worse.” (J.A. 636.) As the district court correctly determined, no reasonable 12 No. 07-5060 jury faced with this evidence—evidence which was introduced by Plaintiff—could conclude that the flooding of the South 8th Street site was either abrupt or unexpected. Quite to the contrary, a reasonable jury could only conclude that the flooding of this site occurred often, was sufficiently well-known to be reported by local media, and could last for days at a time. Plaintiff’s evidence regarding the Gurley Pit site leads to a similar conclusion. In deposition testimony, William Gurley, one of the operators of the site, testified that the Gurley Pit site filled up with water during 1974, prompting Larry Gurley to write the West Memphis City Attorney on September 27, 1974 requesting that the city provide additional drainage. In his September 1974 letter, Larry admitted “that on several occasions this year, we have had a flooding situation here in our plant . . . .” (J.A. 639.) In 1977, the Environmental Protection Agency wrote the Gurleys informing them that there “may be a discharge from your facility . . . .” at the Gurley Pit site. (J.A. 638.) Similarly, the EPA’s “Superfund Site Close Out Report” on the Gurley Pit site found that releases occurred from this site in 1978 and 1979, the later causing as much as 500,000 gallons of oil to escape into the surrounding environment. (J.A. 642.) Again, a reasonable jury could only find that the discharges from the Gurley Pit site were frequent and well-known, not abrupt and unexpected. Despite the overwhelming evidence suggesting that the toxic discharges from both sites were frequent, well-known and often long lasting, and despite the fact that Plaintiff introduced this very same evidence into the record, Plaintiff maintains that the district court’s grant of summary judgment was inappropriate. To support this claim, Plaintiff relies on Grant-Southern Iron & Metal Co. v. CNA Ins. Co., 905 F.2d 954 (6th Cir. 1990) and Employers Ins. of Wausau v. Petroleum Specialties, 13 No. 07-5060 Inc., 69 F.3d 98 (6th Cir. 1995), two cases which, applying Michigan law, reversed a grant of summary judgment to allow additional fact-finding on whether pollutive discharges were sudden and accidental. 905 F.2d at 958; 69 F.3d at 107. Both of these cases, however, undermine Plaintiff’s case. Grant-Southern stands for the proposition that, under Michigan law, when pollution damages “may have been the result of a few discrete polluting events, each of which was short in duration and accidental in nature,” then those discharges fall within a sudden and accidental clause. 905 F.2d at 957. Employers Insurance added further to this analysis, holding that “[w]hen a pollution discharge occurs on a regular ongoing basis over a [lengthy] period as a normal part of the [industrial] operation . . . it is impossible to characterize those discharges . . . as sudden within the plain and obvious meaning of that term.” 69 F.3d at 106 (internal quotations omitted). Assuming these Michigan law cases may be applied to the instant Pennsylvania law case, both cases suggest that the discharges in the instant case were not sudden and accidental. The instant case’s discharges were frequent, well-known and long lasting. In other words, they “occur[ed] ‘on a regular ongoing basis over a [lengthy] period as a normal part of the [industrial] operation’”. Id. Faced with Plaintiff’s own evidence in this case, no reasonable jury could have found that the instant discharges were “short in duration.” Accordingly, neither Grant-Southern nor Employers Insurance saves Plaintiff’s case, and the district court correctly held that the post-1972 insurance plans did not require Defendant to cover Plaintiff’s legal costs in the underlying lawsuit. II. PMA’S OBLIGATION TO REIMBURSE MUELLER FOR THE REASONABLE COST OF SETTLING THE UNDERLYING LAWSUIT 14 No. 07-5060 In addition to its claim that Defendant was obligated to provide it with legal defense in the underlying lawsuit, Plaintiff also claims that Defendant must indemnify it for the costs of settling that suit. As discussed above, however, the policies at issue in this case do not cover the underlying lawsuit. Furthermore, Plaintiff bears a more difficult burden to demonstrate that it has a right to indemnification under these policies than it bore with respect to its claim seeking defense. See Gedeon, 188 A.2d at 322 (holding that “there may be an obligation to defend” under an insurance policy, even though there is “no obligation to indemnify”). Accordingly, the district court correctly rejected Plaintiff’s claim seeking reimbursement for the cost of settling the underlying lawsuit. III. APPLICABILITY OF PENNSYLVANIA’S BAD FAITH INSURANCE STATUTE Finally, Plaintiff alleges that Defendant violated Pennsylvania’s bad faith insurer statute. Under Pennsylvania law, “[i]n an action arising under an insurance policy, if the court finds that the insurer has acted in bad faith toward the insured,” the court may award interest on the claim, award punitive damages against the insurer, or assess court costs and attorney fees against the insurer. 42 Pa.C.S.A. § 8371. Plaintiff alleges that Defendant violated this bad faith insurer statute by “fail[ing] to analyze Mueller’s claim” regarding the underlying lawsuit, failing to communicate with Plaintiff regarding the claim, and delaying a coverage decision until after the instant lawsuit was filed. (Plaintiff’s Br. 38.) We disagree. Pennsylvania’s bad faith insurance statute does not provide a definition of “bad faith,” and the Supreme Court of Pennsylvania has not explained what a plaintiff must prove to establish a violation of this statute. Nevertheless, both the Third Circuit and Pennsylvania’s intermediate 15 No. 07-5060 appellate court agree that a bad faith insurance claim may not be stated unless “the insurer lacked a reasonable basis for denying benefits. . . .” Klinger v. State Farm Mut. Auto. Ins. Co., 115 F.3d 230, 233 (3d Cir. 1997); see Terletsky v. Prudential Property and Cas. Ins. Co., 649 A.2d 680, 688 (Pa. Super. Ct. 1994). Furthermore, this lack of a reasonable basis for denying benefits must be proven by clear and convincing evidence. Klinger, 115 F.3d at 233. Given this requirement, Plaintiff’s bad faith insurer claim must fail. As discussed above, the underlying lawsuit does not fall within the scope of the insurance policies. Therefore, Defendant had more than just a “reasonable basis for denying benefits,” Id., it had a legally sound reason for doing so,3 and the decision of the district court rejecting Plaintiff’s bad faith insurer claim must be affirmed.