# ESSENTIAL UTILITIES, INC. v. SWISS RE CORPORATE SOLUTIONS ELITE INSURANCE CORPORATION

> District Court, E.D. Pennsylvania · February 1, 2023

URL: https://www.frixlaw.com/law-library/cases/10404726

## Case

- **Court:** District Court, E.D. Pennsylvania
- **Decided:** February 1, 2023
- **Opinion:** 100trialcourt
- **Cited by:** 0 later opinions in the Frix Law Library

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## Opinion text

IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA

ESSENTIAL UTILITIES, INC., et al. :
: CIVIL ACTION
v. : NO. 22-1559
:
SWISS RE GROUP, et al. :

M E M O R A N D U M

EDUARDO C. ROBRENO, J. FEBRUARY 1, 2023

This action involves alleged breaches of insurance
contracts. Plaintiffs, Essential Utilities and Aqua Illinois
(“Plaintiffs”), contend that Defendant Swiss Re Corporate
Solutions Elite Insurance (“SRCS Elite”), with whom Plaintiffs
have excess insurance policies, is obligated to defend
Plaintiffs in two underlying lawsuits involving lead that
leached into a public water supply.
Both parties have moved for judgment on the pleadings. SRCS
Elite has moved for judgment on Count I of the amended complaint
for breach of contract and Count V of the amended complaint for
declaratory judgment.1 Plaintiffs move for partial judgment on
Count V of the amended complaint regarding SRCS Elite’s duty to
defend in the underlying lawsuits.

1 In Count V, Plaintiffs seek a declaration that, inter alia,
they are insured under SRCS Elite’s policies, that the
underlying claims are covered by the policies, and that SRCS
Elite has a duty to assume the defense costs and provide a
defense.
For the forthcoming reasons, the Court will deny SRCS
Elite’s motion and grant Plaintiffs’ motion.
I. BACKGROUND

A. The Underlying Lawsuits

Plaintiffs provide drinking water to the residents of the
Village of University Park, Illinois. In December 2017,
Plaintiffs switched the source of the drinking water and
introduced new water treatment chemicals. In May 2019, testing
showed unacceptable levels of lead in the water. Two lawsuits
were filed against Plaintiffs.
First, on September 3, 2019, Village residents filed a
class action against Plaintiffs alleging that Plaintiffs
negligently caused lead to leach from the solder and plumbing
into the water supply, causing “damages to persons and
property.” ECF No. 26, ¶ 19 (amended complaint). Second, on
September 9, 2019, the Attorney General of Illinois brought an
action against Plaintiffs for injunctive and other relief
alleging harm to the public health and welfare of the residents
due to the lead infiltration.
B. The Insurance Policies
Plaintiffs had a five-million-dollar pollution liability
insurance policy from Chubb Insurance which protected against
claims of bodily injury and property damage, including those
raised in the underlying lawsuits described above. The Chubb
policy has been exhausted and Chubb has paid five million
dollars in indemnity payments and legal defense expenses in
connection with the two lawsuits.

Plaintiffs also had two excess general liability insurance
policies through SRCS Elite with ten-million-dollar coverage
limits in excess of the Chubb policy. These two policies were
effective for consecutive annual periods from 2017 to 2019.
Having exhausted the Chubb policy, the parties now disagree
whether the SRCS Elite policies provide additional coverage in
connection with the two underlying lawsuits.
II. LEGAL STANDARD2

Pursuant to Federal Rule of Civil Procedure 12(c), “[a]fter
the pleadings are closed – but early enough not to delay trial –
a party may move for judgment on the pleadings.” Fed. R.
Civ. P. 12(c). If the moving party “establishes that ‘there are
no material issues of fact, and [the moving party] is entitled
to judgment as a matter of law,’” a motion for judgment on the
pleadings should be granted. Zimmerman v. Corbett, 873 F.3d 414,
417 (3d Cir. 2017) (quoting Sikirica v. Nationwide Ins. Co., 416
F.3d 214, 220 (3d Cir. 2005)). “In considering a motion for
judgment on the pleadings, a court must accept all of the
allegations in the pleadings of the party against whom the

2 The parties agree that Pennsylvania law applies and have
argued their respective positions based on that law.
motion is addressed as true and draw all reasonable inferences
in favor of the non-moving party.” Id. at 417-18. Thus, the Rule
12(c) standard mirrors that of a motion to dismiss under Rule

12(b)(6). Id. at 417. “Where both parties file motions for
judgment on the pleadings, each party’s right to a judgment must
be determined from a consideration of the party’s own motion as
though no motion had been filed by the other party.” 61A Am.
Jur. 2d, Pleading § 499 (citing State at Inf. McKittrick ex rel.
Martin v. Stoner, 146 S.W.2d 891 (Mo. 1941)). Thus, the Court
will analyze the parties’ motions individually, especially given
that they both seek judgment on one of the same Counts of the
amended complaint.
Contract interpretation is a question of law to be
determined by the court. Kvaerner Metals Div. of Kvaerner U.S.,
Inc. v. Com. Union Ins. Co., 908 A.2d 888, 897 (Pa. 2006). The

court will give effect to any clear and unambiguous policy
terms, but when a term is ambiguous, “the policy is to be
construed in favor of the insured.” Donegal Mut. Ins. Co. v.
Baumhammers, 938 A.2d 286, 290 (Pa. 2007) (quoting Kvaerner
Metals Div., 908 A.2d at 897).
The insured has the burden of establishing coverage under
an insurance policy. Nationwide Mut. Ins. Co. v. Cosenza, 258
F.3d 197, 206 (3d Cir. 2001) (citing Erie Ins. Exch. v.
Transamerica Ins. Co., 533 A.2d 1363, 1366 (Pa. 1987)). The
burden shifts to the insurer, however, to show that the loss
falls within a specific policy exclusion. Erie Ins. Exch., 533
A.2d at 1366 (quoting Miller v. Boston Ins. Co., 218 A.2d 275,

277 (Pa. 1966)). Thereafter, the burden shifts back to the
insured to show that an exception to the exclusion applies.
Jugan v. Econ. Premier Assurance Co., 728 F. App’x 86, 90 (3d
Cir. 2018) (citing TIG Specialty Ins. v. Koken, 855 A.2d 900,
915 (Pa. Commw. Ct. 2004)); Consol. Rail Corp. v. ACE Prop. &
Cas. Ins. Co., 182 A.3d 1011, 1027 (Pa. Super. 2018). “[P]olicy
exclusions are to be construed narrowly in favor of coverage.”
Mut. Benefit Ins. Co. v. Politsopoulos, 115 A.3d 844, 852 n.6
(Pa. 2015)).
III. DISCUSSION

A. SRCS Elite’s Motion for Judgment on the Pleadings
SRCS Elite seeks judgment on Counts I and V of the amended
complaint which assert a breach of the SRCS Elite policies and
seek declaratory relief.
SRCS Elite argues that the policies’ pollution exclusion
bars the coverage sought and that there are no applicable
exceptions to the exclusion; thus, there can be no breach of
contract.3 The Pollution Exclusion provides that:

3 The pertinent terms of the two policies are the same. Thus,
the Court will cite only one of the policies for the sake of
simplicity. Specifically, the Court will cite the policy entered
This insurance shall not apply to [inter alia]:

2. Any damage, loss, cost or expense arising out of any
request, demand, order or statutory or regulatory
requirement that any “Insured” or others test for,
monitor, clean-up, remove, contain, treat, detoxify or
neutralize, or in any way respond to, or assess the
effects of pollutants . . . .

ECF No. 21-2, p. 71.4 There are exceptions to this exclusion
however, including that:
This exclusion does not apply and the “Insured” is not
subject to the Self-Insured Retention stated in the
Schedule above if the “retained limits” for the
pollution liability risks described above exists or
would have existed but for the exhaustion of such
“retained limits.” For purposes of this paragraph,
coverage provided under this Policy will follow the
terms, definitions, conditions, exclusions and
limitations of the first underlying insurance as
described in the “scheduled underlying insurance.”

Id.5

into by the parties in 2018, which is located at ECF No. 21-2,
with reference to the relevant ECF page number(s).

4 This pollution exclusion is on a schedule attached to the
SRCS Elite policies and replaces the pollution exclusion found
earlier therein. Compare ECF No. 21-2, p. 71 (the superseding
pollution exclusion) with pp. 16-18 (the original pollution
exclusion). For the purposes of these motions, the Court assumes
the exclusion is applicable in that the underlying lawsuits
allege “damage[s] . . . “arising out of [a] request . . . that
[the] “insured” . . . in any way respond to . . . the effects
of pollutants.” ECF No. 21-2, p. 71.

5 There is also a separate exclusion that only applies after
the “Self-Insured Retention” of ten million dollars has been
paid by Plaintiffs. See ECF No. 21-2, p. 70 (the “Self-Insured
Retention” schedule) and p. 71 (the pollution exclusion). The
parties agree that this condition has not been met.
Thus, while the SRCS policies typically would not apply to
damages arising out of a demand that the insured, inter alia,
“in any way respond to . . . the effects of pollutants,” they

will apply if the relevant “retained limits” have been paid by
Plaintiffs in relation to the underlying lawsuits. Moreover, if
this exception applies, Plaintiffs need not first pay the “Self-
Insured Retention” of ten million dollars before the SRCS Elite
policies apply. See id. at 70-71.
The policies define “retained limit” as
1. The total applicable limits of “scheduled underlying
insurance” and any applicable limit of “other insurance”
providing coverage to the “insured”; or

2. The amount shown in the Declarations as the Self-
Insured Retention applicable to each “occurrence” that
results in damages not covered by “scheduled underlying
insurance” or “other insurance.”

Id. at 26.
Regarding the first definition of “retained limit, the SRCS
Elite policies do list “scheduled underlying insurance,” but the
parties agree that it is not applicable here and therefore
cannot be exhausted or used to reach the “retained limit.” See
id. at 30 (listing the “scheduled underlying insurance”). “Other
insurance” is defined under the SRCS Elite policies as:
a policy of insurance providing coverage for damages
covered in whole or in part by this policy. “Other
insurance” does not include “scheduled underlying
insurance,” the amount shown in the Declarations as the
Self-Insured Retention or any policy of insurance
specifically purchased to be excess of this policy and
providing coverage that this policy also provides.

Id. at 25. The parties disagree whether the exhausted Chubb
policy is “other insurance” and on the meaning of “retained
limit.”6
Thus, under the first definition of “retained limit,” if
the exhausted Chubb policy is “other insurance,” and alone can
comprise the “retained limit,” then the SRCS Elite policies will
apply to protect Plaintiffs.
1. The Chubb Policy Is “Other Insurance”
SRCS Elite argues that the Chubb policy is not “other
insurance” because the Chubb policy and SRCS Elite policies do
not cover the exact same risks, noting that the Chubb policy
explicitly includes pollution coverage while the SRCS Elite
policies specifically exclude it.7
However, as noted by Plaintiffs, the definition of “other
insurance” in the SRCS Elite policies only requires that the
Chubb policy cover some of the same damages as the SRCS Elite
policies to qualify as “other insurance.” Here, both the Chubb

6 The second definition of “retained limit” only applies if
there is no applicable “scheduled underlying insurance” or
“other insurance” and Plaintiffs have paid the ten-million-
dollar “Self-Insured Retention.” As stated, Plaintiffs have not
paid the “Self-Insured Retention.”

7 The Court notes that defense counsel has previously
identified the Chubb policy as likely “other insurance” in
correspondence with Plaintiffs’ counsel. ECF No. 26-8, p. 4.
policy and the SRCS Elite policies cover damages for bodily
injury and property damage and the SRCS Elite policy
specifically covers pollution loss in certain situations that

trigger the exception to the pollution exclusion. ECF No. 26-4,
p. 43 (Chubb policy); ECF No. 21-2, pp. 7 & 71 (SRCS Elite
policy). Damages for both property loss and bodily injury are
sought in the underlying lawsuits.
Thus, the Court concludes that the Chubb policy is “other
insurance” under the SRCS Elite policies because the Chubb
policy provides coverage for damages covered at least in part by
the SRCS Elite policies.
2. The Definition of “Retained Limit”
The parties offer two competing interpretations of
“retained limit.” SRCS Elite contends that there is no existing
“retained limit” that would trigger the exception to the

pollution exclusion. Plaintiffs argue that since the exhausted
Chubb policy is “other insurance,” it sets the “retained limit”
and triggers the pollution exclusion exception. The Court
concludes that a plain reading of the term “retained limit”
shows that Plaintiffs have proffered the correct interpretation.
SRCS Elite argues that for the first definition of
“retained limit” to apply, all “scheduled underlying insurance”
and all “other insurance” must be exhausted before the SRCS
Elite policy covers any excess loss. Because it is undisputed
that the “scheduled underlying insurance” listed in the SRCS
policies is inapplicable here, according to SRCS Elite, those
coverages can never be exhausted and the first definition can

never be met. SRCS Elite further argues that Plaintiffs fail to
meet the second definition of “retained limit” because that
definition requires Plaintiffs to have satisfied the ten million
dollar “Self-Insured Retention,” which they have not done. Thus,
according to SRCS Elite, there are no existing “retained limits”
and the exception to the pollution exclusion does not apply.
Plaintiff correctly notes that SRCS Elite’s interpretation
ignores the word “applicable” in the “retained limit”
definitions. On its face, the first definition of “retained
limit” concerns not all but only the “applicable limits” of
“scheduled underlying insurance” and any “applicable limit” of
“other insurance.” Here, there are no applicable limits in any

of the “scheduled underlying insurance” but there is a five-
million-dollar applicable limit of the exhausted Chubb policy,
which is “other insurance.” Thus, the first definition of
“retained limit” is met after factoring in all applicable
“scheduled underlying insurance” limits (zero) and all
applicable “other insurance (one).
Ignoring the word “applicable” in these definitions also
creates an absurd scenario where SRCS Elite would never be
obligated to honor their policies assuming there was at least
one inapplicable “scheduled underlying insurance” or “other
insurance” listed in or related to its policy.
SRCS Elite incorrectly asserts that Plaintiffs’

construction leads to surplusage because both definitions would
be satisfied where the “scheduled underlying insurance” is
inapplicable, so long as there is applicable “other insurance.”
This depiction is facially inaccurate. A plain reading of the
term shows that the first definition of “retained limit” is
satisfied when there is applicable “scheduled underlying
insurance” or applicable “other insurance,” while the second
definition can only be satisfied in the absence of both.
SRCS Elite also argues that Plaintiffs’ interpretation of
“retained limit” contradicts the second sentence of the
pollution exclusion exception making Plaintiff’s interpretation
illogical. As stated previously, the pollution exclusion

exception is triggered when “retained limits” exist. See ECF No.
21-2, p. 71. The second sentence of the exception continues that
when “retained limits” exist, “[f]or purposes of this paragraph,
coverage provided under this Policy will follow the terms,
definitions, conditions, exclusions and limitations of the first
underlying insurance as described in the ‘scheduled underlying
insurance.’” Id. (emphasis added). SRCS Elite notes that in a
situation like this, where the “retained limit” is only
comprised of “other insurance,” and there is no applicable
“scheduled underlying insurance,” under the exception language
there are no terms for the SRCS policies to follow.
Indeed, this is a conundrum. However, rather than proving

SRCS Elite’s position, it indicates ambiguity within the
pollution exclusion which the Court must resolve in Plaintiffs’
favor, and prevents the Court from granting judgment on the
pleadings in favor of SRCS Elite. Donegal Mut. Ins. Co., 938
A.2d at 290. SRCS Elite seeks to alter the plain meaning of the
term “retained limit” to fix its infirm pollution exclusion
language. However, it is the pollution exclusion that requires
reformation, not the “retained limit” definition.
Courts will “endeavor to find an interpretation” of an
ambiguous term that avoids absurd or ineffective results. Laudig
v. Laudig, 624 A.2d 651, 654 (Pa. Super. 1993) (quoting Pocono
Manor Ass’n v. Allen, 12 A.2d. 32, 35 (Pa. 1940)). Here,

Plaintiffs provide a reasonable interpretation of the pollution
exclusion exception that alleviates the incongruity between it
and the definition of “retained limit”: to the extent coverage
under the exception is triggered by “retained limits” consisting
only of “other insurance,” that coverage should follow the
terms, definitions, conditions, exclusions and limitations of
the applicable “other insurance.” See Am. Auto. Ins. Co. v.
Murray, 658 F.3d 311, 321 (3d Cir. 2011) (“Ambiguous provisions
in an insurance policy must be construed against the insurer and
in favor of the insured; any reasonable interpretation offered
by the insured, therefore, must control.” (quoting Med.
Protective Co. v. Watkins, 198 F.3d 100, 104 (3d Cir. 1999))).

The Court further notes that the original pollution
exclusion in the policies, which was superseded by the infirm
version discussed above, provides that the exceptions to the
exclusion:
apply to the extent that such coverage is provided by
“scheduled underlying insurance” or would have been
provided but for the exhaustion of the applicable limits
of such “scheduled underlying insurance” by the payment
of “loss” covered by this policy; provided, however,
that coverage provided by this policy will be no broader
than coverage provided by such “scheduled underlying
insurance.”

ECF No. 21-2, p. 17 (emphasis added). Unlike the superseding
pollution exclusion, this original version was only triggered by
the existence of “scheduled underlying insurance.” The
superseding exclusion, however, is broader and the exception is
controlled by the existence of “retained limits” which includes
“other insurance,” not just “scheduled underlying insurance.”
Thus, had SRCS Elite intended the exception to be triggered only
by “scheduled underlying insurance,” it certainly could have
done so (having done so originally).
It is only imprecise drafting in the superseding pollution
exclusion that leaves the parties without guidance regarding
what terms control in the event the exception is triggered. The
pollution exclusion is ambiguous, and the Court will therefore
construe it in favor of Plaintiffs. Donegal Mutual Ins. Co., 938
A.2d at 290. And to prevent the policies from being ineffective,

the Court adopts Plaintiffs’ construction of what terms apply
when the “retained limit” is set solely by “other insurance.”
Am. Auto. Ins. Co., 658 F.3d at 321. Otherwise, the definition
of “retained limit” is plain on its face and Plaintiffs have
proffered the correct interpretation of that term. Thus, the
Court will deny Defendant’s motion for judgment on the pleadings
on Counts I and V of the amended complaint.
B. Plaintiffs’ Motion for Judgment on the Pleadings
Plaintiffs seek judgment on the pleadings regarding SRCS
Elite’s duty to defend Plaintiffs in the underlying lawsuits.
The polices describe the duty to defend as follows:
We will have the right and duty to defend the “insured”
against any “suit” claiming damages for “bodily injury,”
“property damage” or “personal and advertising injury,”
even if meritless, false or fraudulent, to which this
insurance applies when:

1. the applicable limits of “scheduled underlying
insurance” have been exhausted by payment of “loss” to
which this policy applies and the total applicable
limits of “other insurance” have been exhausted; or

2. damages claimed for “bodily injury,” “property
damage” or “personal and advertising injury” are

a. not covered by “scheduled underlying insurance”
or any “other insurance,” and
b. the applicable Self-Insured Retention has been
exhausted by payment of “loss” covered by this
policy.

ECF No. 21-2, p. 9.
The parties disagree on the meaning of the duty provision
and their arguments mirror those made in relation to “retained
limits,” discussed above. As a result, Plaintiffs again proffer
the correct interpretation of this language and, thus, are
entitled to judgment on the pleadings regarding SRCS Elite’s
duty to defend in the underlying actions.
“[A]n insurer’s potential duty to defend is ‘determined
solely by the allegations of the complaint in the [underlying]
action.’” Ramara, Inc. v. Westfield Ins. Co., 814 F.3d 660, 678
(3d Cir. 2016) (quoting Kvaerner Metals Div., 908 A.2d at 896).
Here, the Court concludes that a reading of the complaints in
the underlying actions clearly indicate that they seek damages
and injunctive relief in relation to bodily injury and property
damage.8 See ECF No. 26-2, ¶¶ 55, 69 (the class action complaint
alleging that the lead leaching “has threatened the health of
Plaintiffs and Class members, and exposes them to injury and the

8 The SRCS Elite policies define “bodily injury” as “bodily
injury, sickness or disease” including “mental anguish or mental
injury resulting from ‘bodily injury’” and define “property
damage” as “physical injury to tangible property, including all
resulting loss of use of that property” and “loss of use of
tangible property that is not physically injured.” ECF No 21-1,
pp. 23 & 26.
fear of future injury” and “Aqua’s actions and inactions . . .
interfered with their use and enjoyment of [the Class Members’]
properties”); ECF No. 26-3, p. 28 (the State of Illinois

complaint, alleging that Plaintiffs “caused the release of lead
into the Public Water System, thereby threatening harm to
Village residents and interfering with their use and enjoyment
of the water”).
Regarding the parties’ interpretations, Plaintiff
interprets the language of the first duty trigger as meaning
that the duty to defend arises when the applicable limits of
“scheduled underlying insurance” have been exhausted by the
payment of “loss” and the total applicable limits of “other
insurance” have been exhausted. Thus, Plaintiffs contend that
since there are no applicable limits from any of the “scheduled
underlying insurance” (as discussed above) and the total

applicable limits of the Chubb policy (which is “other
insurance”) have been exhausted, SRCS Elite’s duty to defend has
been triggered. This is the correct, plain, and literal
interpretation of the policy language.
Regarding the first duty trigger, SRCS Elite makes an
argument similar to the one rejected above. It contends that all
“scheduled underlying insurance” must be exhausted, regardless
of whether it is applicable, before its duty to defend arises.
Here, given that the “scheduled underlying insurance” can never
be exhausted because it does not apply to this situation, SRCS
Elite argues that the duty can never arise under the first
trigger provision. Alternatively, under the second duty trigger,

SRCS argues that the duty can be triggered if there is no
“scheduled underlying insurance” but Plaintiffs have paid the
ten million dollar “Self-Insured Retention” (which the parties
agree has not happened).
As discussed above, this interpretation conflicts with the
clear language of the policies in that it ignores the word
“applicable.” Even as to the second duty trigger, SRCS ignores
that it is only applicable when there is neither applicable
“scheduled underlying insurance” nor applicable “other
insurance.” Again, SRCS Elite’s interpretation of the duty to
defend provision guarantees that SRCS’s duty would never trigger
assuming the existence of any inapplicable “scheduled underlying

insurance” or “other insurance.”
SRCS Elite also argues that because “loss” is defined
differently under its policies and the Chubb policy,9 the Chubb
policy was not exhausted by payment of “loss” as defined in the
SRCS Elite policies. This argument is largely inapplicable since

9 SRCS Elite contends that the Chubb policy defines loss as
including, inter alia, attorneys’ fees, while the SRCS Elite
policies define “loss” as sums paid in settlement or in
satisfaction of a judgment, and do not include attorneys’ fees.
See ECF No. 21-2, p. 24.
SRCS Elite owes Plaintiffs a duty to defend under the first duty
trigger provision. Regarding “other insurance,” the duty to
defend language does not reference “loss.” It merely provides

that the duty is triggered when the total applicable limits of
“other insurance” have been exhausted, which has happened in
this case. The additional requirement that the limits be
exhausted by “loss” is reserved exclusively for when there is
either applicable “scheduled underlying insurance,” or when
there is neither applicable “scheduled underlying insurance” nor
applicable “other insurance,” which is not the case here.
In that Plaintiffs have proffered the plain meaning of the
duty to defend provision, and have shown that it has been
triggered by the exhaustion of the Chubb policy, they are
entitled to judgment as a matter of law on the issue of SRCS
Elite’s duty to defend.

IV. CONCLUSION

Because the exception to the pollution exclusion in the
SRCS Elite policies creates coverage for the underlying lawsuits
and because SRCS Elite owes Plaintiffs a duty to defend, SRCS
Elite’s motion for judgment on the pleadings will be denied and
Plaintiffs’ motion for judgment on the pleadings will be
granted.
An appropriate order follows.

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Source: Frix Law Library, https://www.frixlaw.com/law-library/cases/10404726. Public record. Not legal advice.