Rohm & Haas Co. v. Continental Casualty Co.
781 A.2d 1172, 32 Envtl. L. Rep. (Envtl. Law Inst.) 20255, 566 Pa. 464 (2001)
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Rule of Law:
Pennsylvania recognizes a broad 'known loss' doctrine that bars insurance coverage when an insured was aware of a likely exposure to losses that would reach the level of excess coverage at the time of contracting. Coverage may also be denied due to fraudulent non-disclosure of material information with intent to deceive, which can be inferred from surrounding circumstances. A prolonged delay in notifying insurers of a potential claim, even if liability arises from later-enacted legislation, may present a triable issue of fact regarding prejudice to the insurer.
Facts:
- In June 1964, Rohm & Haas, through a subsidiary, purchased Whitmoyer Laboratories, a veterinary pharmaceuticals company.
- Shortly after the purchase, Rohm & Haas discovered the Whitmoyer site was extensively polluted with arsenic waste.
- From 1964 to 1978, Rohm & Haas undertook remedial measures to clean up the site and continued operations, but arsenic waste continued to be produced.
- In December 1964, Rohm & Haas added the Whitmoyer site to its existing Comprehensive General Liability (CGL) insurance coverage with appellee insurers and periodically purchased additional policies; it disclosed the problem to its primary insurer, broker, and commonwealth authorities, but not the excess insurers.
- In 1978, Rohm & Haas sold the Whitmoyer site to Smith-Kline Beecham.
- In 1980, Congress enacted the Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA), which retroactively imposed strict liability for environmental cleanup costs.
- Subsequent to 1980, the Environmental Protection Agency (EPA) notified Rohm & Haas that they were strictly liable for cleanup costs associated with the Whitmoyer site.
- In 1988, twenty-four years after becoming aware of the pollution, Rohm & Haas notified its excess insurers, asserting a claim for over $21 million for cleanup costs; the insurers denied the claim.
Procedural Posture:
- Rohm & Haas, after its claim for environmental cleanup costs was denied by excess insurers (appellees), filed suit against them.
- The parties agreed to a bifurcated trial, with liability issues presented to a jury and any subsequent damages trial to be held before the bench.
- The trial court directed a verdict in favor of Rohm & Haas on the insurers' 'late notice' defense.
- The jury, however, found in favor of the insurers on the 'known loss' and 'fraud' defenses, concluding no coverage existed.
- Following post-trial motions, the trial court granted judgment notwithstanding the verdict (JNOV) on the jury's findings regarding 'known loss' and 'fraud', thereby ruling in favor of Rohm & Haas.
- The Superior Court reversed the trial court's JNOV with respect to both the 'known loss' and 'fraud' defenses, and also reversed the directed verdict on the 'late notice' defense, reinstating the jury's findings and allowing the 'late notice' defense to proceed.
- Rohm & Haas (appellants) filed a timely appeal to the Supreme Court of Pennsylvania.
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Issue:
Did the Superior Court err in reversing the trial court's grant of judgment notwithstanding the verdict (JNOV), thereby finding that (1) Pennsylvania recognizes a broad 'known loss' doctrine that precludes coverage where an insured was aware of a likely exposure to losses reaching excess coverage, (2) there was sufficient evidence for a jury to find fraudulent non-disclosure, and (3) a 24-year delay in notification constituted a triable issue of fact for a 'late notice' defense?
Opinions:
Majority - Flaherty, Chief Justice
No, the Superior Court correctly reversed the trial court's grant of JNOV on all three issues: known loss, fraud, and late notice. The Court formally recognized the 'known loss' doctrine in Pennsylvania, adopting a broad construction that precludes coverage if the insured was reasonably aware of a likely exposure to losses reaching the level of coverage. The evidence presented, including Rohm & Haas's knowledge of catastrophic pollution, concerns about legal liability under the Clean Streams Law, payment of neighbors' medical bills and water, and considering the situation a 'grave emergency,' was sufficient for the jury to find Rohm & Haas certainly knew of potential liability large enough to reach excess layers, thus making JNOV improper. Regarding fraud, sufficient clear and convincing evidence supported the jury's finding of fraudulent intent. Fraud can be inferred from circumstantial evidence, and Rohm & Haas's undisputed knowledge of the catastrophic pollution, their non-disclosure to excess insurers for 24 years, their purchase of increasing excess coverage as awareness of risk grew, and deliberate efforts to keep the situation from public knowledge allowed the jury to permissibly infer a knowing and deliberate intent to deceive. Finally, the trial court erred in directing a verdict on the 'late notice' defense. A 24-year delay in notification (33 years by trial) caused evidence to dissipate, witnesses to become unavailable or suffer memory loss, and documents to be be lost or destroyed. These are prejudicial effects, and disputed issues of fact existed as to whether the insurers were prejudiced by this delay, making it a triable issue for the jury.
Dissenting - Castille, Justice
Yes, the trial court's grant of JNOV was proper, and the Superior Court erred in reversing it. The majority's broad 'known loss' formulation is unprecedented, departs from prevailing standards in other jurisdictions, and unduly expands the doctrine beyond instances where legal liability is a certainty at the time of contracting. The dissent argues that the liability arose unpredictably from the retroactive application of CERCLA in 1980, years after the policies were issued, and was not a 'known loss' at the time of contracting, as Rohm & Haas did not have certain knowledge of this specific legal liability. For fraud, the majority improperly imposed an 'unprecedented duty to volunteer unrequested information,' contrary to Pennsylvania law that 'mere silence is not fraud absent a duty to speak.' Insurers, as sophisticated parties, should be responsible for inquiring about material information. There was no direct evidence of an intent to deceive, and circumstantial evidence, such as disclosure to primary insurers and public authorities, negated such intent, especially considering the unforeseeable impact of CERCLA. Lastly, the majority's late notice analysis is flawed because it ignores the importance of CERCLA. The notice provision required notification of 'any occurrence likely to give rise to a claim.' Before EPA notification under CERCLA in 1986, there was no basis for Rohm & Haas to believe a claim was 'likely to reach the excess policies,' and any prejudice accrued before a duty to notify arose.
Concurring - Nigro, Justice
No, the Superior Court properly reversed the trial court's grant of judgment notwithstanding the verdict in favor of Appellants with respect to Appellees’ defense of fraud. The evidence clearly supported the jury’s verdict that Appellants fraudulently concealed the pollution at Whitmoyer. Given that the Appellees demonstrated they were not responsible for indemnifying Appellants on the basis of fraud, there was no need for the majority to address the merits of the additional defenses of known loss and late notice.
Analysis:
This case significantly impacts environmental liability insurance law in Pennsylvania by formally adopting a broad 'known loss' doctrine, potentially making it easier for insurers to deny coverage for known pre-existing conditions. It also clarifies that fraudulent intent can be inferred from an insured's non-disclosure of material information, even without direct inquiry from sophisticated insurers, placing a higher burden on insureds to volunteer information. The ruling underscores the critical importance of timely notification of potential claims, even when liability stems from subsequently enacted legislation, highlighting the need for vigilance in managing latent risks.
