Opinion
Civil Action No. 03-6506.
September 15, 2004
MEMORANDUM
Presently before this Court is Plaintiff's Motion for Summary Judgment, Defendant's Response, and Plaintiff's Reply. For the reasons set forth below, Plaintiff's Motion for Summary Judgment is granted in part and denied in part.
I. BACKGROUND
Sometime between March 5, 2002 and September 30, 2002, an oil tank located in the basement of 2335 East Clearfield Street, Philadelphia, Pennsylvania ("Insured Property") ruptured and leaked home heating oil/No. 2 fuel oil ("Heating Oil") resulting in property damage and personal injuries to Mary McGovern and Diana Baraniecki ("McGovern and Baraniecki"), the owners of the property adjacent to the Insured Property, at 2337 East Clearfield Street, Philadelphia, Pennsylvania ("McGovern and Baraniecki's Property"). Additionally, on February 24, 2003, the radiator pipes, located on the Insured Property, burst flooding the basement of McGovern and Baraniecki's property.
On May 13, 2003, McGovern and Baraniecki filed a complaint in the Court of Common Pleas of Philadelphia County against multiple defendants including Irving Epstein, D.O., Alvin Elfand, Bernice Koplan, Esquire, Charles B. Gross, Stevens and Stevens, Inc., Paul Galiczynski t/a Paul's Cement Work, City of Philadelphia, Joseph Boreman, and F.C. Haab Co. Inc. Irving Epstein, D.O. is the only defendant from the state case who is also a defendant in this matter. McGovern and Baraniecki are seeking compensation for personal injuries, allegedly resulting from their exposure to oil fumes, and property damages to their basement, resulting from the Insured Property's oil spill, burst water pipes, and the inadequate cleanup of the oil spill.
Irving Epstein ("Defendant"), Alvin Elfand, and Bernice Koplin are co-executors of the estate of Marlene F. Epstein, deceased owner of the Insured Property. Atlantic Casualty Insurance Company ("Plaintiff") issued a policy of insurance, Policy No. M066000264 ("the Policy"), to Defendant for the period of June 12, 2002 to December 12, 2002, covering the Insured Property. The Policy contains a pollution exclusion clause that precludes coverage for:
1. "Bodily Injury" or "property damage" which would not have occurred in whole or in part but for the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants at any time.
2. Any loss, cost or expense arising out of any:
a. Request, demand or order that any insured or other test for, monitor, clean up, remove, contain, treat, detoxify or neutralize, or in any way responding to, or assessing the effects of the pollutants; or
b. Claim or "suit" by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying, or neutralizing or in any way responding to, or
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Pollutants means solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste. Waste includes material to be recycled, reconditioned, or reclaimed.
(Pl.'s Comp. Ex. C, Atlantic Casualty Ins. Policy at 18-20.)
Plaintiff is seeking a judicial determination of its obligations in the state matter of McGovern v. Epstein. In particular, Plaintiff seeks a declaratory judgment relieving Plaintiff of any obligation to defend and/or indemnify Defendant on the claims made by McGovern and Baraniecki in state court on the theory that the first incident — the Heating Oil spill, arguing that it constitutes pollution that is not covered by the Policy due to the above cited pollution exclusion clause, and with regard to the second incident, Plaintiff argues that it occurred outside the Policy's coverage window. Defendant filed a counterclaim seeking interest, punitive damages, costs, and attorney's fees against Plaintiff, alleging Plaintiff is in breach of the Policy and acting in bad faith. Plaintiff moves for summary judgment in its favor regarding Plaintiff's claims and Defendant's counterclaims.
II. STANDARD OF REVIEW
A motion for summary judgment will be granted where all of the evidence demonstrates "that there is no genuine issue as to any material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). A dispute about a material fact is genuine "if the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). Since a grant of summary judgment will deny a party its chance in court, all inferences must be drawn in the light most favorable to the party opposing the motion. U.S. v. Diebold, Inc., 369 U.S. 654, 655 (1962).
The ultimate question in determining whether a motion for summary judgment should be granted is "whether reasonable minds may differ as to the verdict." Schoonejongen v. Curtiss-Wright Corp., 143 F.3d 120, 129 (3d Cir. 1998). "Only disputes over facts that might affect the outcome of the suit under the governing law will properly preclude the entry of summary judgment." Anderson, 477 U.S. at 248.
III. DISCUSSION
This action is brought in federal court under diversity subject matter jurisdiction, 28 U.S.C. § 1332 pursuant to the Declaratory Judgment Act, 28 U.S.C. § 2201. The Declaratory Judgment Act allows a party at legal risk to obtain a judicial declaration without waiting for litigation to commence. Alcoa v. Beazer E., 124 F.3d 551 (3d Cir. 1997). Such determinations are appropriate when the Plaintiff seeks a judicial determination of an insurance contract clause, because the interpretation of language in an insurance policy is a question of law capable of resolution in a motion for summary judgment. First State Underwriters Agency of New England Reinsurance Corp. v. Travelers Ins. Co., 803 F.2d 1308 (3d Cir. 1986).
The issues involved in McGovern and Baraniecki's state court case do not affect this Court's decision and therefore do not preclude a declaratory judgment.
When interpreting contract provisions in a diversity case, the Court must use applicable state law. See, Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-80 (1938). In this case, both parties agree Pennsylvania law should be applied to determine the issues.
A. Heating Oil does not Fall Within the Policy's Pollution Exclusion Clause.
The central issue in this case is whether Heating Oil is a "pollutant" within the meaning of the exclusion clause of the Policy. Contractual language is ambiguous if it is capable of being understood in more than one sense. Hutchison v. Sunbeam Coal Co., 519 A.2d 385, 390 (Pa. 1986). Where language of a contract is clear and unambiguous, courts are required to give full effect to that language. Steuart v. McChesney, 444 A.2d 659, 663 (Pa. 1982). In general, words of common usage in an insurance policy are to be construed in their natural, plain, and ordinary sense by considering their dictionary definitions. Id.
The Pennsylvania Supreme Court, whose rulings the Court must follow in this diversity case, requires that where a pollution exclusion clause does not specifically and unambiguously classify a substance as a pollutant, the court must perform an extensive analysis to determine if the exclusion clause applies. Madison Construction Co. v. Harleysville Mut. Ins. Co., 735 A.2d 100 (Pa. 1999). The Madison Court requires that the specific substance at issue be within the meaning of the relevant exclusion clause in order for it to be excluded. Madison, 735 A.2d at 107. In this case, the Policy's exclusion clause does not provide insurance coverage for claims that are based on the escape of pollutants, and the term "pollutant" within the Policy is defined as a "solid, liquid, gaseous, or thermal irritant or contaminant including smoke, vapor, soot, fumes, acid, alkalis, chemicals and waste." (Pl.'s Comp. Ex. C, Atlantic Casualty Ins. Policy at 18-20.) Thus the exclusion clause at issue in this case, neither specifically mentions Heating Oil nor any other petroleum products. (Pl.'s Comp. Ex. C, Atlantic Casualty Ins. Policy at 17-21.) This does not end the Court's inquiry, however, because it may be, as the Plaintiff argues, that Heating Oil is a contaminant, and would therefore be excluded from coverage.
Petroleum products are most properly classified as minerals and/or the byproducts of minerals. Standard International Trade Classification, Revision 3, provided on the internet by Werner Antweiler Jr., Policy Analysis Division, Faculty of Commerce and Business Administration, University of British Columbia, http://pacific.commerce.ubc.ca/trade/sitc3-2.html.
The definition of a contaminant is "something that contaminates." Webster's Third New International Dictionary, 491 (Merriam-Webster Inc. 1st ed. 1986). To contaminate is to "soil, stain, corrupt, or infect by contact or association" or "to render unfit for use by the introduction of unwholesome or undesirable elements." Id. Several lower Pennsylvania courts have previously found that heating oil was in fact a contaminant as applied to similar circumstances and relating to similar exclusion clauses. Graham v. Harleysville Ins. Co., 632 A.2d 939 (Pa.Super. 1993); Cudday v. Prudential Prop, Cas. Ins. Co., 27 Pa. D.C. 4th 142 (1994). However, these cases were decided before the Pennsylvania Supreme Court decision inMadison, which mandates a more extensive analysis to include not just a determination of the dictionary definitions of the terms, but also requires courts to look at relevant governmental definitions. Madison, 735 A.2d at 107. In Madison, decided several years after the above mentioned cases, the Pennsylvania Supreme Court explained that the key issue is not whether the Policy's definition of a "pollutant" is so broad that virtually any substance could be considered a pollutant, rather, the inquiry is "guided by the principle that ambiguity (or the lack thereof) is to be determined by reference to a particular set of facts, [and therefore] we focus on the specific product at issue." Madison, 735 A.2d at 107.
In this case, the Court must consider the definition of Heating Oil. The American Heritage Dictionary defines heating oil as referring to "any grade of petroleum products . . . used to heat residential, industrial, or commercial premises." The American Heritage Dictionary of the English Language, 709 (Houghton Mifflin Co. 4th ed. 2000). Neither the terms "pollutant" nor "contaminant" is not found within heating oil's dictionary definition. Id. This definition provides little help in the Court's analysis.
As mentioned above, the Madison court also requires courts to consider any relevant findings by governmental agencies or definitions dictated by statute. The Defendant points to both the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), 42 U.S.C. § 9601(33), and its state equivalent, the Pennsylvania Hazardous Sites Cleanup Act ("PHSCA"), 35 P.S. § 6020.103, which both specifically exclude "petroleum products" from their definitions of the terms "pollutant" and "contaminant." The Defendant argues this is evidence that the Court should not consider Heating Oil a pollutant under the exclusion clause or, at the very least, that given contrary statutory definitions, the clause is sufficiently ambiguous such that it should be construed against the Plaintiff.
The Plaintiff argues, however, that CERCLA does not apply because Congress enacted the Clean Water Act, 33 U.S.C. § 1362 (2004) and the Oil Pollution Act, 33 U.S.C. § 2701 (2004) to address the problems associated with the discharge of oil into the environment. Plaintiff claims, but fails to develop any support for the contention, that the Clean Water Act and Oil Pollution Act were meant to be construed in conjunction with CERCLA's provisions. Both these acts focus solely on the pollution or contamination of water. Some other state's courts have found petroleum products to be pollutants within an insurance policy's pollution exclusion clause because of the Clean Water Act's definition includes industrial waste, but those cases dealt exclusively with discharge of the substance into navigable waters. U.S. v. Edison, 108 F.3d 1336 (11th Cir. 1997) (holding that a petroleum-based sludge-like substance used as a cleaning agent for an underground storage tank was industrial waste and therefore a pollutant under the Clean Water Act), Sierra Club, Lone Star Chapter v. Cedar Point Oil Co. Inc., 73 F.3d 546 (5th Cir. 1996) (holding water from an oil drilling waste treatment facility was "chemical waste" or "industrial waste" under the Clean Water Act and therefore a pollutant); American Petroleum Institute v. U.S.E.P.A., 858 F.2d 261, 263 (5th Cir. 1988) (citing the E.P.A.'s Clean Water Act regulations designating oil and grease as conventional pollutants).
The Clean Water Act and the Oil Pollution Act both address the issue of pollution of navigable waters. This case deals solely with a discharge of fuel oil into the basement of the Insured Property and McGovern and Baraniecki's Property, and therefore it would seem CERC LA would be most applicable, not the above two mentioned acts.
In addition, several courts around the country when presented with the application of similar contractual exclusion clauses on specifically heating oil spills have classified heating oil as either a pollutant or a contaminant, but again these cases dealt solely with fuel oil discharged into navigable waters. Heyman Assoc. No. 1 v. Ins. Co. of the State of Pa., 653 A.2d 122 (Conn. 1995) (classifying a fuel oil spill into the nearby harbor as pollution); Guilford Indus. Inc. v. Liberty Mutual Ins. Co., 688 F.Supp. 792 (D.Me. 1988) (holding fuel oil that washed into the river from a textile mill was a pollutant within the meaning of the mill's insurance policy's exclusion clause). So although petroleum products are excluded from the definitions of some hazardous waste clean up legislation, there is evidence that there is a general understanding that Heating Oil is a contaminant at least when associated with ground water or navigable waters. Plaintiff has failed, however, to provide any evidence that these Acts and their definitions apply to the discharge of Heating Oil onto land, an area clearly under the purview of CERCLA and PHSCA.
Furthermore both CERCLA and PHSCA are cited as by Pennsylvania courts as persuasive authority in determining whether a substance qualifies as a pollutant. Municipality of Mt. Lebanon v. Reliance Ins. Co., 778 A.2d 1228, 1233-34 (Pa.Super. 2001). InMt. Lebanon, the court relied in part upon "arguments that the federal Comprehensive Environmental Response Compensation and Liability Act specifically excludes natural gas from the definitions of a pollutant or contaminant," as does the Pennsylvania Hazardous Sites Cleanup Act, in order to conclude that natural gas is not a pollutant. Id. Given that Plaintiff claims to have drafted its exclusion clause to prevent paying on claims relating to heating oil spills, it would seem reasonable that they would have addressed federal and state statutory definitions that conflict with its definition of pollutant and contaminant. In this case, had Plaintiff simply listed "petroleum products" as a pollutant or a contaminant, such an addition would have overcome the unambiguous statutory language in CERCLA and PHSCA.
Finally, Madison court requires that the analysis consider the specific substance, and any reports regarding its toxicity or chemical makeup. The Plaintiff has provided no such information on the Heating Oil in question.
Because the burden is on Plaintiff to show there is no ambiguity, and because in this case Plaintiff's efforts to meet that burden have failed as explained herein, this Court finds that there is sufficient ambiguity within the Policy's pollution exclusion clause, such that it must be construed against Plaintiff insurance company and in favor of Defendant. Therefore this Court finds that Heating Oil is not a contaminant or a pollutant under the Policy.
B. Plaintiff does not Have a Duty to Defend and/or Indemnify Defendant for Alleged Negligence Occurring on February 24, 2003, After Expiration of the Policy.
Both parties request Count II of Plaintiff's Motion for Summary Judgment to be granted as the alleged negligence involving the burst water pipes in the basement of the Insured Property occurred on February 24, 2003, after expiration of the Policy. (Def. Irving Epstein's Opp. to Summ. J. at 3). As a result, this Court grants Plaintiff's Motion for Summary Judgment for Count II and dismisses Defendant's counterclaim counts relating to the events after the expiration of the Policy. Plaintiff has no duty to defend and/or indemnify Defendant with regard to any claims resulting from the water damage that occurred on or about February 24, 2003.
C. Defendant is not Entitled to Attorney's Fees or Costs Incurred as a Result of Defending Against Plaintiff's Declaratory Judgment Action.
The plain language of the Supplemental Payments provision in the Policy states in pertinent part:
SUPPLEMENTARY PAYMENTS — COVERAGES A AND B
We will pay, with respect to any claim we investigate or settle, or any "suit" against an insured we defend:
1. All expenses we incur.
* * *
4. All reasonable expenses incurred by the insured at our request to assist us in the investigation or defense of the claim or "suit," including actual loss of earnings up to $250 a day because of time off from work.
* * *
(Pl.'s Comp. Ex. C, Atlantic Casualty Ins. Policy at 19.)
Plaintiff is not defending Defendant in the present action for declaratory judgment. Plaintiff denies having a duty to defend or indemnify Defendant. (Pl.'s Motion for Summ. J. at 15.) Furthermore, under the Declaratory Judgement Act, 42 Pa. C.S.A. §§ 7531- 7541, an award of attorney's fees where an insurer refuses to indemnify a defendant in an underlying case requires a showing that such refusal was in bad faith. Regis Ins. Co. v. Wood, 2004 Pa. Super. LEXIS 1328 ("only the additional showing of the insurer's bad faith justified fees.").
The true rule should be that an insurer who refuses, contrary to its contractual obligation, to defend a third-party action against its insured on the ground the policy involved affords no coverage is liable for attorney fees incurred by the insured in defense of the action brought against him. But, this general rule does not serve to sustain an award for expenses incurred in an action to establish insurance coverage unless there is a showing made in the declaratory judgment action that the insurance company has acted in bad faith or fraudulently or was stubbornly litigious.Kelmo Enterprises v. Commercial Union Ins., 426 A.2d 680, 685 (Pa.Super. 1981).
To recover for bad faith Defendant is required to establish that Plaintiff did not have a reasonable basis for denying benefits under the Policy and that Plaintiff knew of or recklessly disregarded its lack of such a reasonable basis in denying the claim. Terletsky v. Prudential Property and Casualty Ins. Co., 649 A.2d 680, 688 (1994). Defendant does not offer any evidence that Plaintiff acted improperly. Plaintiff's reasonable basis for denying the claim under the Policy was that their interpretation of the Policy's exclusion clause included barring claims for damages attributable to Heating Oil. Although this Court did not agree with this interpretation given the various factors discussed above, it is not a wholly unreasonable or reckless interpretation. Because there is no evidence in the record that Plaintiff acted in bad faith, the Defendant is not entitled to attorney's fees or costs incurred.
D. Defendant has not Established a Prima Facie Case of Bad Faith Against Plaintiff to Merit the Award of Punitive Damages.
Defendant alleges Plaintiff acted in bad faith by denying Defendant's claim and such action therefore entitled Defendant to punitive damages. For the reason stated above, this Court finds there was no evidence of bad faith on the part of the Plaintiff. Therefore, this Court declines to award punitive damages in this matter.
IV. CONCLUSION
For all the foregoing reasons, this Court grants Plaintiff's Motion for Summary Judgment on Count II and denies its motion on Counts I. The Court also enters judgement in favor of Defendant on Defendant's counterclaim Counts I and II, and enters judgment for the Plaintiff on Defendant's counterclaim Counts III and IV.