Opinions of the United
2007 Decisions                                                                                                             States Court of Appeals
                                                                                                                              for the Third Circuit


1-31-2007

Sunoco Inc v. IL Natl Ins Co
Precedential or Non-Precedential: Non-Precedential

Docket No. 05-4992




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                                                              NOT PRECEDENTIAL

                     UNITED STATES COURT OF APPEALS
                          FOR THE THIRD CIRCUIT
                               ____________

                             Nos. 05-4992 and 06-1295
                                  ____________

                             SUNOCO, INC.;
                          SUNOCO, INC. (R&M),
                    FORMERLY SUN COMPANY INC. (R&M)

                                           v.

                 ILLINOIS NATIONAL INSURANCE COMPANY,

                                          Appellant
                                   ____________

                   On Appeal from the United States District Court
                       for the Eastern District of Pennsylvania
                                (D.C. No. 04-cv-04087)
                    District Judges: Honorable Charles R. Weiner
                            and Honorable John R. Padova
                                    ____________

                           Argued December 13, 2006
          Before: FISHER, CHAGARES and GREENBERG, Circuit Judges.

                              (Filed: January 31, 2007)

Edward P. Krugman
Cahill, Gordon & Reindel
80 Pine Street
New York, NY 10005
Thomas G. Wilkinson, Jr.
Stephen A. Cozen
John J. Dwyer
Cozen & O’Connor
1900 Market Street, 3rd Floor
Philadelphia, PA 19103

Laura A. Foggan (Argued)
Karalee C. Morell
Wiley, Rein & Fielding
1776 K Street, N.W.
Washington, DC 20006
       Attorneys for Appellant

Peter Buscemi
Morgan, Lewis & Bockius
1111 Pennsylvania Avenue, N.W.
Washington, DC 20004

Richard F. McMenamin
Morgan, Lewis & Bockius
1701 Market Street
Philadelphia, PA 19103

David A. Luttinger, Jr. (Argued)
Morgan, Lewis & Bockius
101 Park Avenue
New York, NY 10178
      Attorneys for Appellees

                                     ____________

                                 OPINION OF THE COURT
                                      ____________

FISHER, Circuit Judge.

      This case comes to us on appeal from the District Court’s grant of partial summary

judgment and entry of declaratory judgment in favor of Sunoco, Inc. and Sunoco, Inc.

                                           2
(R&M) (hereinafter “Sunoco”), plaintiffs in this case. The District Court determined that

Illinois National Insurance Company (“Illinois National”) had a duty to defend Sunoco

against approximately seventy-seven suits arising from Sunoco’s use of a gasoline

additive. Illinois National appealed. For the reasons set forth below, we will reverse only

so that the District Court may reconsider its decision in light of our holding that one of

the seventy-seven cases presented did not arise from the same occurrence as the other

seventy-six.

                                              I.

       Because we write only for the parties, we will set forth only those facts necessary

for our analysis. The factual background of this case is undisputed. Sunoco is part of a

global petrochemical corporation that manufactures and markets petroleum products,

including gasoline. Since the late 1970s, Sunoco, along with numerous other

petrochemical producers, has been using a gasoline enhancer known as methyl tertiary-

butyl ether (“MtBE”), an additive that was originally thought to reduce the amount of

carbon released into the air during the burning of gasoline.

       As of the filing of this appeal, Sunoco was a named defendant in seventy-seven

lawsuits asserting claims based on Sunoco’s manufacture and distribution of gasoline

containing MtBE. Sixty of those lawsuits were consolidated into Multi-District Litigation

(“MDL”) 1358. The other seventeen remain pending individually.




                                              3
       Prior to the filing of these suits, Sunoco purchased an insurance policy from

Illinois National which covers lawsuits based on damage to persons or property. The

policy imposes on Illinois National a duty to defend against any claims to which the

policy might apply. However, before the policy applies, Sunoco must satisfy two separate

self-insured retentions, which are essentially like deductibles. The language regarding the

self-insured retentions reads:

       In consideration of the premium charged, it is agreed that the Limits of
       Insurance for each of the coverages provided by this policy will apply [in]
       excess of a $250,000 Self-Insured Retention (hereinafter referred to as the
       Per Occurrence Retention Amount) and an additional Self Insured
       Retention of $5,000,000 (hereinafter referred to a [sic] the Aggregate
       Retention Amount.)
       The Per Occurrence Amount:
       (a)    shall apply only to occurrences covered under this policy; and
       (b)    shall apply separately to each such occurrence arising out of such
       occurrence, and
       (c)    shall include all amounts under the Supplementary Payments section
       of the policy.[]
       The Aggregate Retention Amount:
       (a)    shall apply only to occurrences covered under this policy; and
       (b)    shall apply to amounts which are greater than the Per Occurrence
       Retention Amount; and
       (c)    shall not include any amount within the Per Occurrence Retention
       Amount.

In short, Sunoco must meet two spending thresholds before coverage begins. First,

Sunoco must spend $250,000 on each individual occurrence. Then Sunoco must spend an

aggregate amount of $5,000,000 in addition to the $250,000 spent on each individual

occurrence.




                                             4
       The contract defines “occurrence” as “an accident, including continuous or

repeated exposure to substantially the same general harmful conditions.” The policy also

includes a pollution exclusion, which excludes from coverage any damage which would

not have occurred but for the discharge of pollutants. However, the policy also contains

an exception to the pollution exclusion. The policy will cover damage caused by the

discharge of a pollutant if the discharge of pollutants caused damage away from premises

owned or rented by Sunoco.

       Sunoco filed this suit after Illinois National refused to defend it against the

underlying suits, claiming that Sunoco had failed to meet the self-insured retentions and

that coverage was barred under the pollution exclusion. On a motion for partial summary

judgment on the issue of duty to defend, the District Court found that all seventy-seven

cases constituted a single occurrence. Therefore, Sunoco had met its self-insured

retentions. It also stated that coverage was not excluded on the basis of the pollution

exclusion. This timely appeal followed.

                                              II.

       Before we can reach the substance of Illinois National’s appeal, we must satisfy

ourselves that we have jurisdiction. Generally, only final orders are appealable. 28

U.S.C. § 1291. A final and appealable order “is one ‘which terminates the litigation

between the parties on the merits of the case and leaves nothing to be done but to enforce

by execution what has been determined.’” Dotzel v. Ashbridge, 

, 323 (3d



                                              5
Cir. 2006) (quoting Richerson v. Jones, 

, 922 (3d Cir. 1977)). As the

District Court’s order only granted partial summary judgment, it is not a final order for

purposes of section 1291.

       However, a district court may certify an order that disposes of fewer than all of the

claims in an action pursuant to Rule 54(b) of the Federal Rules of Civil Procedure. Fed.

Home Loan Mortgage Corp. v. Scottsdale Ins. Co., 

, 440 (3d Cir. 2003).

When ruling on a 54(b) certification, a district court must satisfy itself that two

requirements have been met: first, that the judgment on the particular issue is final and,

second, that there is no just reason for the delay. In reaching that conclusion, the district

court should avoid boilerplate approval and “clearly articulate the reasons and factors

underlying its decision to grant 54(b) certification.” Anthuis v. Colt Indus. Operating

Corp., 

, 1003 (3d Cir. 1992). However, the statement of reasons is not a

jurisdictional requirement. If the district court’s statement of reasons is lacking, we may

review the record and satisfy ourselves that the 54(b) certification was properly granted.

Carter v. Philadelphia, 

, 345 (3d Cir. 1999).

       The District Court’s explanation and a review of the record satisfies us that it

properly certified its decision under Rule 54(b). Therefore, we exercise jurisdiction

pursuant to section 1291.1




       1
           The District Court properly applied Pennsylvania law in this diversity action.

                                                6
                                            III.

       We next address whether the District Court erred in determining that Illinois

National had a duty to defend. When considering whether there is a duty to defend, a

court must first determine the scope of coverage under the policy and then examine the

allegations of the underlying complaints to determine whether those allegations are within

the scope of coverage. Lucker Mfg. v. The Home Ins. Co., 

, 813 (3d Cir.

1994). “[T]he factual allegations of the underlying complaint against the insured are to

be taken as true and liberally construed in favor of the insured.” Frog Switch & Mfg. Co.

v. Travelers Ins. Co., 

, 746 (3d Cir. 1999).2

       Illinois National only has a duty to defend if Sunoco has met the self-insured

retentions. As previously indicated, the Sunoco policy included a $250,000 per-

occurrence retention and an aggregate $5,000,000 self-insured retention. Sunoco has

agreed that it has not spent more than $250,000 on each of the underlying seventy-seven

lawsuits. Therefore, Illinois National has a duty to defend only if the seventy-seven cases

constitute a single occurrence under the policy.




       2
        Illinois National argues that the District Court erred when refusing to allow
discovery into the facts underlying the seventy-seven lawsuits filed against Sunoco.
However, in Pennsylvania, a court should look only to the four corners of the complaint
to determine whether an insurer has a duty to defend. Madison Const. Co. v. Harleysville
Mut. Ins. Co., 

, 109 (Pa. 1999). Therefore, the District Court appropriately
refused to allow discovery into the underlying facts.

                                             7
       In order to determine whether there is a single occurrence under Illinois National’s

policy with Sunoco, we must inquire as to whether there is “one proximate, uninterrupted

and continuing cause which resulted in all of the injuries and damage.” Donegal Mut.

Ins. Co. v. Baumhammers, 

, 813 (Pa. 2006). This “cause test,” which we

originally set forth in Applachian Insurance Co. v. Liberty Mutual Insurance Co., 

, 61 (3d Cir. 1982), holds that “[a]s long as the injuries stem from one proximate

cause there is a single occurrence.” 

and magnitude of injuries and the

number of plaintiffs do not affect the determination. 

Pennsylvania law in the toxic tort setting have repeatedly found

that the negligent inclusion of a potentially dangerous chemical constitutes a single

occurrence. For example, in Liberty Mutual Insurance Co. v. Treesdale, Inc., we found a

single occurrence that resulted in numerous personal injury claims for asbestos-related

injuries. 

(3d Cir. 2005). Treesdale manufactured a product known as

“Soffelex,” which contained asbestos. In the typical case filed against Treesdale, steel

workers who worked in the open hearth of steel mills which produced Soffelex sued after

being exposed to asbestos. The Treesdale policy defined occurrence as “all personal

injury and property damage arising out of continuous or repeated exposure to

substantially the same general conditions.” We found “[t]hat section unambiguously

addresses the situation where, as here, many people allege personal injuries arising from

one occurrence.” 

All of the injuries stemmed from a common source – the



                                             8
production and distribution of asbestos-containing products. 

Therefore, there

was a single occurrence that caused multiple injuries. See also Union Carbide Corp. v.

Travelers Indemnity Co., 

, 21 (W.D. Pa. 1975) (holding that there was a

single occurrence where a manufacturer was sued by numerous plaintiffs after it included

a resin in its product that produced an intolerable stench, as the cause of the stench was

the inclusion of the resin in the product, not the individual use of the product by the

plaintiffs).

       The underlying seventy-seven cases before us are not identical. They allege

contamination in different geographic regions, they resulted from a variety of sources

including gas tank leaks and accidental spills from pipelines, and the plaintiffs vary from

individuals to governmental entities. However, despite these differences, all of the

injuries alleged, save one, arose from a single occurrence. Each of the plaintiffs in the

cases presented in the record allege the same cause of action: injuries resulting from the

hazardous manufacture of gasoline containing MtBE and failure to warn. Just as we

determined in Treesdale, each plaintiff suing Sunoco was exposed to the same general

harmful condition – gasoline containing MtBE – which resulted in contaminated ground

water. 

. It is irrelevant how each plaintiff came into contact

with the MtBE as the same alleged negligent act of using MtBE was the proximate cause

of the harm. Union 

.




                                              9
       However, the complaint in the case of West Hazelton Hospitality Corp. v. Sunoco,

Inc., does not allege the same products liability and failure to warn claims. The West

Hazelton plaintiffs are suing Sunoco based on the negligent maintenance of a Sunoco gas

station that resulted in contamination of the ground water surrounding their hotel. While

the complaint in that case refers to the inherent dangerousness of MtBE, it is not the

dangerous nature of MtBE that gives rise to the complaint, but a gasoline product that

contaminated the ground water surrounding the hotel. Therefore, we will reverse the

District Court’s decision as to the West Hazelton case and remand to the District Court so

that it might determine if Sunoco has met its self-insured retentions without its

expenditures on West Hazelton.

                                             IV.

       As a final effort to sidestep its duty to defend, Illinois National claims that the

cases brought against Sunoco fall under the pollution exclusion and are, therefore, outside

the purview of coverage. Illinois National claims that because the harm occurred due to a

release of pollutants, it need not defend Sunoco. Sunoco has responded by stating that the

exception to the pollution exclusion applies as the damage occurred away from property it

owned or rented.

       “Generally speaking, under Pennsylvania law, the issuer of a general liability

insurance policy has a duty to defend its insured when the allegations in the complaint

against it could potentially fall within the coverage of the policy.” Air Prods. &



                                              10
Chemicals, Inc. v. Hartford Accident & Indem. Co., 

, 179 (3d Cir. 1994). An

insurer must defend if any claim included in the complaint may potentially fall under the

policy and must continue to defend until it can confine the complaint to a claim that has

no possibility of falling under the policy. American States Ins. Co. v. Md. Cas. Co., 

, 887 (Pa. Super. Ct. 1993). An insurer seeking to avoid its duty to defend based

on a policy exclusion has the burden of proving the applicability of that exclusion. 

insurer has met that burden, the insured bears the burden of proving the

applicability of an exception to that exclusion. Air 

.

       As the District Court correctly noted, while some of the complaints allege harm

caused by leaks on Sunoco’s property, none of the complaints allege that the damage

occurred on Sunoco’s property. Therefore, the exception to the exclusion applies and the

plaintiffs in the underlying seventy-seven cases have asserted claims that might fall under

the policy. Until Illinois National defends the suits to such an extent that there is no

longer a claim that may fall into the exception to the exclusion, it must defend Sunoco.

American States Ins. 

.

                                              V.

       For the reasons set forth above, we agree with the District Court’s decision that the

pollution exclusion does not excuse Illinois National from its duty to defend. However,

we will reverse its decision as the West Hazelton case did not arise from the same

occurrence as the other seventy-six cases. We will remand the case so that the District



                                              11
Court may consider whether Sunoco has met its self-insured retentions without the

inclusion of expenses from the West Hazelton case.




                                           12