Pennsylvania Manufacturers Association Insurance Company V. Johnson Matthey, Inc.: Multiple

Pennsylvania Manufacturers’ Association Insurance Company v. Johnson Matthey, Inc.: Multiple Trigger Doctrine and Impacts to Superfund Litigation Written by: Candee Wilde

The Commonwealth Court recently held that certain Comprehensive General Liability (“CGL”) “occurrence” insurance policies issued before the institution of a blanket pollution exclusion cover latent environmental contamination that occurred during the policy period, even when such contamination does not manifest until after the policy period expires. This holding identified latent environmental contamination as falling within an exception to the longstanding rule that CGL occurrence insurance policies are triggered by the first manifestation of injury. Pennsylvania Manufacturers’ Ass’n Insurance Co. v. Johnson Matthey, Inc., (Johnson Matthey), No. 330, 2017 WL 1418401 (Pa. Commw. Ct. Apr. 21, 2017). Determining when an “occurrence” under a CGL policy is triggered by environmental contamination can have important practical implications. Insurers take the position that the “first manifestation rule” applies. The first manifestation rule limits the occurrence to one trigger—the time the contamination first manifested. Insureds take the position that the “multiple trigger exception” applies, covering latent contamination over a broader period of time and giving insureds access to multiple policies for a single event. The difference in when a policy is triggered can be significant for how insureds conduct themselves and for how other PRPs (including for example, insureds’ contribution defendants) conduct themselves. In Johnson Matthey, the Commonwealth Court ruled on this issue in favor of insureds by holding latent environmental contamination may give rise to multiple triggers to a pre-pollution exclusion CGL policy. Defendant Johnson Matthey, Inc. (“JMI”) is the owner of the Bishop Tube Site (the “Site”), which was allegedly contaminated by trichloroethylene (“TCE”) used in the manufacture and process of alloy tubes and equipment. In 2010, the Pennsylvania Department of Environmental Protection (“DEP”) named JMI as a defendant in an underlying suit seeking cost recovery under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (“CERCLA”) and its state counterpart, the Pennsylvania Hazardous Sites Cleanup Act, for costs incurred in remediation required as a result of disposal of hazardous substances, including TCE, into the environment. Pennsylvania Manufacturers’ Association Insurance Company (the “Insurer”), agreed to defend JMI in the underlying action, but reserved rights to establish a defense to its duty to defend or indemnify as set forth in the relevant insurance policies. After approximately five years of defense, the Insurer sued JMI and sought a declaratory judgment that the Insurer had no duty to defend or to indemnify JMI for recovery of costs sought by the DEP because the contamination was not detected during the policy period. The insurance policies at issue in this action were CGL policies held by JMI’s predecessors for the years 1969-1971. Unlike modern CGL policies, these older policies did not exclude coverage for pollution, and therefore arguably provided coverage for property damage claims arising from environmental damage. JMI’s insurance policies were “occurrence” policies, rather than “claims made” policies, meaning that each policy provided insurance coverage for liabilities arising from events that occurred when the policy was in effect, rather than claims that were asserted during the policy’s term. At issue in this case was whether the events that occurred during each policy’s term amounted to an “occurrence” under the policy, triggering coverage. JMI asserted that the policies applied to the environmental contamination at the Site that was in progress during the policy period, but that did not manifest until years later. The Insurer cited the “first manifestation doctrine” as support for its argument that the policies could not provide coverage for latent environmental contamination. See Pennsylvania National Mutual Casualty Insurance Co. v. St. John, 106 A.3d 857, 861 (Pa. Super. Ct. 1986). The first manifestation doctrine is a long-established rule that states an occurrence insurance policy is not triggered until the first manifestation of injury—here, the manifestation of contamination in 1980. The Commonwealth Court disagreed with the Insurer’s position, stating latent environmental contamination falls within an exception to the first manifestation doctrine called the “multiple trigger doctrine.” Like the undetected effects of asbestos that expand the trigger of coverage to allow an insured to obtain coverage for bodily injury damage for all periods from exposure to manifestation, undetected environmental contamination can be triggered at any time from the time of contamination until the effects of contamination are manifest. See J.H. France Refractories Co., v. Allstate Insurance Co., 626 A.2d 502 (Pa. 1993). The Court denied the Insurer’s motion for summary judgment and held that the latent environmental contamination that occurred during the policy periods at issue was covered by the Insurer’s policies, even though the effects of the contamination were not yet manifest. While this case appears to have a limited holding that applies to old CGL occurrence policies that pre- date the environmental pollution exclusion, the decision may have substantial implications for policyholders in the Commonwealth. Old CGL policies can pay for current environmental claims. Many companies that are undergoing environmental remediation for property contaminated decades ago or that must contribute significant funds in CERCLA cost recovery or contribution claims, were insured, or had predecessors that were insured, by these CGL policies and have an improved position now that the policies apply to latent environmental contamination in Pennsylvania. The duty to defend and indemnify in JMI’s policies are typical duties provided in CGL policies. The duty to defend means that the insurance company agrees to defend the policyholder for claims arising from bodily injury or property damage and will cover even “groundless, false, or fraudulent” claims. Here, big ticket environmental claims such as those under CERCLA or the Resource Conservation and Recovery Act (“RCRA”) are covered under these old policies. This duty alone is valuable as, in many cases, the cost of defense can exceed the amount of settlement or judgment for a particular claim. Further, the duty to indemnify means the insurance company agrees to indemnify (i.e., pay for) any damages the policyholder may face with respect to bodily injury or property damage. Again, million dollar hazardous waste cleanups can be covered by this duty. In multiple trigger policies, property damage and bodily injury events related to an environmental condition will typically occur over a number of years prior to knowledge of the contamination and thus trigger multiple policies and bigger payouts. Understanding insurance policies is a critical tool for environmental practitioners because of the substantial amount a policyholder can recover to pay for a claim and defense. The obvious implication of Johnson Matthey is with regard to insurance recovery claims; policyholders should retain old policies (including those of predecessors and affiliates) and attempt to collect when a claim arises, even if litigation is required. However, another valuable practical consequence of the decision is the impact on CERCLA contribution cases from the possible higher insurance payouts. There have been a number of courts that have held a CERCLA contribution plaintiff cannot recover remediation costs from other PRPs when such costs have been paid by collateral sources, including insurance sources. The rationale for this position is that a plaintiff is not allowed to double recover under CERCLA, and it would be inequitable to allow a plaintiff to collect payments from indemnitors and PRPs for the same remediation costs. To account for collateral sources, courts have equitably offset such sources from a plaintiff’s claim, although the case law regarding when and how to offset collateral sources is still developing. See Friedland v. TIC- The Industrial Co., 566 F.3d 1203 (10th Cir. 2009); Basic Management. Inc. v. United States, 569 F. Supp. 2d 1106 (D. Nev. 2008); Raytheon Aircraft Co. v. United States, No. 05–2328, 2007 WL 4300221 (D. Kan. Dec. 8, 2007). In light of this line of CERCLA cases, there are several issues that practitioners should recognize. A policyholder with claims on insurance policies for latent environmental contamination in connection with a Superfund site may want to consider whether there is a strategy to the timing of collection on these policies, and further how a court will allocate the policyholder’s contribution claim if collateral sources account for all or a portion of the claim. A contribution defendant may likewise want to evaluate other PRPs’ insurance recoveries with the intent to seek a favorable allocation outcome.

Candee Wilde practices in the Environmental Group of Greenberg Traurig, LLP. She resides in the Philadelphia office. Prior to joining the firm, she prosecuted code violations and handled appeals for the City of Philadelphia. Ms. Wilde was educated at the University of Utah and the Villanova Law School, where she served as Executive Editor of the Villanova Environmental Law Journal.

Reprinted with permission from the June 15, 2017 edition of the Pennsylvania Law Weekly©2017 ALM Media Properties, LLC. All rights reserved. Further duplication without permission is prohibited, contact 877-257-3382 or [email protected] .