Petition for Writ of Certiorari — Certain Underwriters at Lloyd's, London v. Indiana Gas Co.

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98 271 AvG} 11998

No.

In The

Supreme Court of the United States

October Term, 1997

CERTAIN UNDERWRITERS AT LLOYD’S, LONDON and

CERTAIN LONDON MARKET INSURANCE COMPANIES,

Petitioners,

vs.

INDIANA GAS COMPANY, INC., RICHMOND GAS

CORPORATION d/b/a INDIANA GAS COMPANY, INC. and

TERRE HAUTE GAS CORPORATION d/b/a INDIANA GAS

COMPANY, INC., et al.,

Respondents.

On Petition for Writ of Certiorari to the

United States Court of Appeals for the Seventh Circuit

PETITION FOR WRIT OF CERTIORARI

THOMAS J. QUINN

STEPHEN T. ROBERTS

MARY ANN D’AMATO

Counsel of Record

STEVEN A. ACCINELLI

Penne MENDES & MOUNT, LLP

DAVID L. SHAPIRO 750 Seventh Avenue

1575 Massachusetts Avenue New York, NY 10019

Cambridge, MA 02138 (212) 261-8000

Attorneys for Petitioners

147585 (800) 274-3321 * (800) 359-6859

COUNSEL PRESS

QUESTIONS PRESENTED

1. Whether a court may consider, for purposes of determining

jurisdiction under 28 U.S.C. § 1332, only the citizenship of the

Active Underwriter of a Lloyd’s Syndicate, or whether the

citizenship of every defendant Underwriter must be considered;

2. Whether, for purposes of determining jurisdiction under

28 U.S.C. § 1332, the Active Underwriter of a Lloyd’s Syndicate

may be designated as a Representative of the other Names of his

or her Syndicate pursuant to Fed. R. Civ. P. 23.2.

PARTIES TO THE PROCEEDING

AND RULE 29.6 STATEMENT

In addition to the parties named in the caption, the Home

Insurance Company, Ranger Insurance Company, St. Paul Fire &

Marine Insurance Company and St. Paul Surplus Lines Insurance

Company were parties before the court of appeals.

Certain London Market Insurance Companies appear as

follows:

1. Accident & Casualty Insurance Company of Winterthur

2. Alba General Insurance Company, Ltd.

3. Allianz International Insurance Company, Ltd.

4. Anglo French Insurance Company, Ltd.

5. Argonaut Northwest Insurance Company

6. Anglo Saxon Insurance Association, Ltd.

7. Assicurazioni D’ Italia

8. Assurances Generales de France (UK) [ART

9. Baloise Fire Insurance Company, Ltd.

10. LaBelgique Industrielle

11. Bishopsgate Insurance Company, Ltd.

12. British Aviation Insurance Company, Ltd

13. British Merchants’ Insurance Company, Ltd.

14. British Northwestern Insurance Company, Ltd.

15. British Reserve Insurance Company, Ltd.

16. City General Insurance Company

17. CNA Reinsurance of London, Ltd., now known as CNA

International Reinsurance Company, Ltd.

18. Continental Insurance Company, Ltd.

19. Comphania Imperio Lisbon

20. Delta Lloyd Non-Life Insurance Co.

21. Dominion Insurance Company, Ltd.

22. Economic Insurance Company, Ltd.

23. Edinburgh Assurance Company, Ltd.

Se tne Pan

. Elders Insurance Company, Ltd.

. European General Reinsurance Company, Ltd.

Ennia (United Kingdom)

. Excess Insurance Company, Ltd.

. Fidelidade Insurance Company also known as Fidelidade

Grupo Segurador

. FM Insurance Company, Ltd.

Assicurazioni Generali di Trieste e Venezia

. Groupe Josi per Thilly Re, Belgium

. Guildhall Insurance Company Ltd.

. Helvetia Accident Swiss Insurance Company

. Highlands Insurance Company, Ltd.

. Home & Overseas Insurance Co. Ltd.

. Iron Trades Mutual Insurance Company, Ltd.

(Now known as Iron Trades Insurance Corp. Ltd.)

. The Insurance Corporation of Ireland

. INSCO, Ltd.

Insurance Company of North America (United Kingdom),

Ltd. (Aviation account)

. International Surplus Lines Insurance Company

. Lincoln Insurance Company, Ltd.

. Lloyd Italico Assicurazioni

. London & Edinburgh General Insurance Company, Ltd.

. London & Hull Maritime Insurance Company, Ltd.

. Mercantile & General Reinsurance Company plc.

. Minster Insurance Company, Ltd., now known as GAN

Insurance Company, Ltd.

. National Casualty Company

. National Casualty Company of America, Ltd.

. National Security Fire and Casualty Company

. Ned Lloyd Non Life

. Norwich Trust Aviation Account

. New India Assurance Company, Ltd.

. Odyssey Re London, Ltd.

. Prudential Assurance Company, Ltd.

55.

56.

57.

58.

39.

60.

61.

62.

63.

64.

65.

66.

67.

68.

69.

70.

was

72.

73.

74.

75.

76.

77.

78.

79.

80.

81.

82.

83.

84.

Reasseguradura Nacional de Venezuela

Reliance Fire & Accident Insurance Corporation, Ltd.

LaReunion Francaise

River Thames Insurance Company, Ltd.

Road Transport & General Insurance Company, Ltd.

Royal Scottish Insurance Company, Ltd.

Royale Belge per Thilly Re, Belgium

Scottish Lion Insurance Company, Ltd.

Southern Insurance Company

St. Katherine Insurance Company Ltd.

Storebrand Insurance Company (United Kingdom), Ltd.

Stronghold Insurance Company, Ltd.

Swiss National Insurance Company, Ltd.

Switzerland General Insurance Company (UK), Ltd.

Swiss Union General Insurance Company, Ltd.

Taisho Marine & Fire Insurance Company (UK), Ltd.

Terra Nova Insurance Company, Ltd.

Threadneedle Insurance Company, Ltd.

Trent Insurance Company, Ltd.

Turegum Insurance Company, Ltd.

Ulster Marine Insurance Company, Ltd.

Unionamerica Insurance Company Ltd.

Unione Assurances de Paris

Utility Services Insurance Company (USICO)

Vanguard Insurance Company, Ltd.

Victory Insurance Company, Ltd.

Westminster Aviation Insurance Group

World Auxiliary Insurance Corporation, Ltd.

World Marine and General Insurance Company, Ltd.

Yasuda Fire & Marine Insurance Company (U.K.), Ltd.

Petitioners’ full Rule 29.6 Statement is attached as a

lodging and submitted herewith.

TABLE OF CONTENTS

Page

I I og os Se eae a ae wy sawed i

Parties to the Proceeding and Rule 29.6 Statement ... ii

pe |. hey eres trey Mere aes eae V

Beene OR TOG BNO oak eens venvcccs vi

CO SO errr e rer eee re eee ee I

ROMANE OE -SUPLUIRIOROONE ius vie vis conn ans hesaevewwe l

Statutory Provision and Rule Involved ............. I

a a Re Ae oe ore) ae yr ee 3

ac, IN 5 6 oo os be SOR kk kates a 2h oa 3

B. Proceedings in the District Court ........... 4

C. Proceedings in the Court of Appeals ........ 8

peasons for Granting Ge WHit 3. 6c ec ences 1]

I. The Petition Should Be Granted To Resolve The

Circuit Conflict Regarding The Application Of

The Diversity Requirement To Lloyd’s

SEN NEIIINES — hecan avec ease sick te tere wes 12

Il. The Petition Should Be Granted Because The

Court Below Did Not Apply The Real Party To

The Controversy Test Articulated By This Court

ae ee I NS a soe wast hawk oh a0 14

Table of Cited Authorities

A. The Petition Should Be Granted

Because The Court Below Failed To

Properly Consider The Active Underwriters’

Representative Status. .............0....

B. The Petition Should Be Granted So This

Court May Clanfy The Standard For Use Of

Fol, 3. Soe ee a ce eka

Conchisiom cs cs ccok cee RE ws bbe okie aes

TABLE OF CITED AUTHORITIES

Cases Cited:

Advani Enters., Inc. v. Underwriters at Lloyds, 140 F.3d

1S7 (2d Cin. TOR cinta ces ca ews ke as ks

Aetna Cas. & Surety Co. v. Iso-Tex Inc., 75 F.3d 216,

(S* Cin. 1996) cca cae ae i ah hea

Carden v. Arkoma Assocs., 494 U.S. 185 (1990)

00 tk a0 0s Se eee eee 1G. 33: 34,- 45,

Certain Underwriters of Lloyd's and Companies v.

General Accident Ins. Co. of America, 909 F.2d 228

(7? Cin, 199GE Soe Sars Seas ee ow ck es

<’svtain Interested Underwriters at Lloyd's, London v.

Layne, 26 F.36 39 (G7 Ce, I9OR) occ cn ses 10, 16, 18

Page

18,

vil

Table of Cited Authorities

Page

Chemical Leaman Tank Lines, Inc. v. The Aetna Cas. &

Surety Co., Nos. 97-5735, 97-5736 (Docketed

November 25, 1997) (to be argued September 15,

PE ae eae oa aR EAA what eee bab ereeias 13

Clark v. Brien, 59 F.3d 1082 (10" Cir. 1995), cert. den.,

SP Ta oc i 18

Curley v. Brignoli, Curley & Roberts Associates, 915 F.2d

81 (2d Cir. 1990), cert. denied, 499 U.S. 955 (1991)

PANO NO seis cd a eee Ae wk SD ww RS 19, 21, 22

Daly v. Lime Street Underwriting Agencies Ltd., [1987]

ee RE RS es Sy de obo dh wo a beew ee 15

Dresser Indus. Inc. v. Underwriters at Lloyd's of London,

Se ee ee Ce A, BOOED oh ack be cve ene cenwes 18

Edinburgh Assurance Co. v. R.L. Burns Corp., 479 F.

Supp. 138 (C.D. Cal. 1979), aff’d in relevant part,

eee eee SAA Ce SUED ick sos decccwecvuees 3

E. R. Squibb & Sons, Inc. v. Accident & Cas. Ins. Co. et

al., Nos. 97-94 68 (L), 97-9470 (CON), 97-9472

(CON), 97-9474 (CON) , 97-9476 (CON), 97-9484

(XAT) (Docketed November 10, 1997) (to be argued

I I I a a kb ag wk asa e boon 13

GAF Corp. v. Hartford Acc. & Indem. Co., No. 98-5073

(Docketed January 21, 1998), (to be argued September

ete cas, cic tp eR CAR CRA the ds 13

Vili

Table of Cited Authorities

Page

Golden Door Jewelry Creations, Inc. v. Lloyd's

Underwriter’s Non-Marine Ass'n, 8 F.3d 760 (11"

Ca Ree Wie a bee ee ae oe eae eee ees 18

Hartford Accident & Indem. Co. v. Dresser Indus. Inc.,

1994 U.S. Dist. LEXIS 1763 (N.D. Ill. Feb. 16, 1994)

ikke oh bbs Seabed ade eee ere wE nee ek aon 22

Independent Retrochemical Corp. v. Aetna Cas. & Sur.

Co., 944 F.2d 940 (D.C. Cir. 1991), cert. den., 503

ko WE Ee es. o | REN PERSE ae iraritp ite eegn rear erge 18

Indiana Gas Co. Inc. v. Aetna Cas. & Surety Co., 946 F.

Supp. 627, 946 F. Supp. 634, 951 F. Supp. 759, 951

F. Supp. 767, 951 F. Supp. 773, 951 F. Supp. 780,

951 F. Supp. 790, 951 F. Supp. 797, 951 F. Supp.

806, 951 F. Supp. 811 and 951 F. Supp. 816 (N.D.

SG SOON cknws oe eee ead eevee eawuee ee 1, 6, 7,8

Indiana Gas Co. Inc. v. Home Ins. Co., 141 F.3d 314

€agh > SDS. Ree 1, 10, 12, ¥3, 14, 15, 17, 18, 39, 20

International Bhd. of Boilermakers v. Local Lodge D354,

Ber Pie: Ce Ta CO, I ei ei ieee ncuas 19

John Hayter Underwriting Agency Ltd. v. R.B.H.S.

Agencies, [1977] 2 Lloyd’s Rep. 105 (C.A. 1976)

Ve Suphican dea eka a WS Wee awe Oko oan oe 15

K. Bell & Assocs. v. Lloyd’s Underwriters, 1998 W.L.

2IAF Che SS ha bec aenk i ee 12

Table of Cited Authorities

Page

Landoil-Resources Corp. v. Alexander & Alexander

Servs., Inc., 918 F.2d 1039 (2d Cir. 1990)

pe ase ee BE OTAS CAN OAR PEN aS eee banka 18

Logan vy. Lloyd’s Underwriters, 888 F.2d 1391 (6" Cir.

SEE e040 G SEES KNS RT AE OER Oe a he CewKs 18

Lowsley-Williams v. North River Ins. Co., 884 F. Supp.

EERE, Fas SEE FAS Oe aes eke oo ees aa 4,9

Massey v. State Farm Lloyds Ins. Co., 993 F. Supp. 568

SAAR Me EEE OS re Oe Vee bea Cee a bee es 23

Mitcheson v. Harris, 955 F.2d 235 (4" Cir. 1992) .... 18

National Am. Ins. Co. v. Certain Underwriters at Lloyd's,

pngon, 93 1.36 3Z9 (9? Cie. 1996) oo cc cas 18

Navarro Savings Ass'n v. Lee, 446 U.S. 458 (1980)

ih hl ae Row he enkin bas 10, 13; 15, 16, 17, 18, 19, 21, 24

Northbrook Excess and Surplus Ins. Co. v. Medical

Malpractice Joint Underwriting Ass'n of Mass., 900

ee Oe eee 22

Putnam Resources v. Patzman, 958 F.2d 448 (i* Cir.

Ne a Sr a ed ig 17

Quinn-L. Aetna Cas. & Surety Co. v. Iso-Tex. Inc., 75

Se Ee CN Ga BN ss Feed So kkes ae Sek bas 23

Table of Cited Authorities

Page

Real Asset Mgmt., Inc. v. Lloyd's of London, 61 F.3d

Ree Ce Re SE AG Rose ch eed ANE ER AERO KS 18

Roby v. Corp. of Lloyd's, 796 F. Supp. 103 (S.D.N.Y.

1992), aff'd on other grounds, 996 F.2d 1353 (2d

Cir. 1993), cert. den., 510 U.S. 945 (1993) ....... 17

Royal Ins. Co. of America v. Quinn-L Capital Corp., 3

F.3d 877 (S" Cir. 1993), cert. den., 511 U.S. 1032

ER GR: Gis ae K Vem un ewes Shaw ene come ar ekenks 23

Sadat v. Mertes, 615 F.2d 1176, 1182 (7" Cir. 1980)

<LERAPACERN TEEN ER OLY RAS eS oe eed eee ey kas 12

Smith v. Lloyd's of London, 568 F.2d 1115 (5" Cir. 1978)

PE Pe a ee eT Pe ee eee Pe re 18

Sayder v. Harris, 394 U.S. 332 (19G9) ....cccc ceca. 19

Supreme Tribe of Ben Hur v. Cauble, 255 U.S. 356 (1921)

Se be ge ee oie head oh eee Shake es 10, 19, 20,

Underwriters at Lloyd’s London v. Pike, 977 F.2d 1278

Ce” Se SOE ci are caus o nied been heen eeeeea kes

Statutes Cited:

BO Cas BTA GED 0 i'n ors ce RNS ee Hed de Ew

7 Bi Eh Os Serer er ever LEP ETT eee eS 5G «

Be We DE ROS <0 50 ais 0 ye bd ban yoe ke kde ea eae 9,

Table of Cited Authorities

Page

Rules Cited:

PG Bn Sa PN Sp ee 17

ree. B. Cw, P7359. Ck 2, 10, 11, 19, 20, 21, 22, 23. 24

ee oie pon a 8

poe we ee OR ey ogee ar ea ae 8

ane a ee 10

Other Authorities Cited:

John McCormack, Carden y. Arkoma Associates: The

Citizenship of Limited Partnerships, Associations, and

Juridical Entities — A Chilling Future for Federal

Diversity Jurisdiction, 27 New Eng. L. Rev. 505

RETPOE ARES eiWh Kes ue eD RGN ye aia: 1]

5 James W. Moore. et al., Moore's Federal Practice

§§ 23.2.06-23.207 (3d ed. Pewee Scie l vedo cn: 22

15 James W. Moore, et al.. Moore’s Federal Practice

Peres (98 06 1997) i 12

Edwin W. Patterson, Essentials of Insurance Law § 9

OO SERED sacikaa fiasucers asa ee 22

G. David Porter, “Incorporating” Limited Partnerships

into Federal Diversity Jurisdiction: Correcting Carden

v. Arkoma Associates, 65 Notre Dame L. Rev. 287

(RFMD sneakers a cuadsncyagaditi hoes en 1]

xil

Table of Cited Authorities

Page

Charles A. Szypszak, Jural Entities, Real Parties in

Controversy and Representative Litigants: A United

Approach to the Diversity Jurisdiction Requirement for

Business Organizations, 44 Me. L. Rev. | (1992)

hk (a PORN eae ae Ea DAE Re R OR ae FNS Res ea 1]

7A Wright, Miller & Kane, Federal Practice & Procedure

SD .5 Sone A ie AD 5k 04 0d Fa a a ce ov 19

7C Wright, Miller & Kane, Federal Practice & Procedure

Ses Se On, SE cS MAS LACE ARs eee KS oO 22

APPENDIX

Page

Appendix A — Opinion of The United States Court of

Appeals for the Seventh Circuit in Indiana Gas

Company, Inc., et al. v. Home Insurance Company, et

one AG ION la

Appendix B — Decisions of the United States District

Court for the Northern District of Indiana, Fort Wayne

Division in Indiana Gas Company, Inc. et al. v. Aetna

Casualty & Surety Company, et al. Dated October a

RRND a re Vis Sac eeu es coc) ISa

Appendix C — Opinion of the United States Court of

Appeals for the Seventh Circuit Denying Petition for

Rehearing Decided Pee OO SOO cc ew 93a

Appendix D — Excerpts from Complaint and Amended

Answer to Complaint of the United States District

Court for the Northern District of Indiana in Jndiana

Gas Company, Inc., et al. y. Aetna Casualty & Surety

Company, et al. Filed Me ee ieee ee 97a

Appendix E — Order of the United States Court of

Appeals for the Seventh Circuit in Indiana Gas

Company, Inc., et al. v. Home Insurance Company, et

al. Dated January 6,1998 .................... 109a

Appendix F — Excerpts From Opinions in Edinburgh

Assurance Co., et al. v. R.l. Burns Corp., et al. Dated

August 30, 1979 and Peter George Hoole Lowsley-

Williams, et al. v. North River Insurance Company, et

eee 8S ee... Illa

Petitioners, Certain Underwriters at Lloyd’s, London and

Certain London Market Insurance Companies, respectfully request

that a writ of certiorari be issued to review the judgment of the

United States Court of Appeals for the Seventh Circuit in this case.

As shown below, that decision is in direct conflict with the decision

of at least one other federal circuit.

OPINIONS BELOW

The opinion of the United States Court of Appeals for the

Seventh Circuit is reported as/ndiana Gas Co. Inc. v. Home Ins.

Co., 141 F.3d 314 (7® Cir. 1998) (App. A), along with the denial of

the Petition for Rehearing (App. C). The opinions of the district

court are reported as /Jndiana Gas Co. Inc. v. Aetna Cas. &

Surety Co., at 946 F. Supp. 627, 946 F. Supp. 634, 951 F. Supp.

759, 951 F. Supp. 767, 951 F. Supp. 773, 951 F. Supp. 780, 951 F.

Supp. 790, 951 F. Supp. 797, 951 F. Supp. 806, 951 F. Supp. 811

and 951 F. Supp. 816 (N.D. Ind. 1996). The five opinions from

which Indiana Gas appealed are included in the Appendix to this

Petition (App. B).

STATEMENT OF JURISDICTION

The judgment of the United States Court of Appeals for the

Seventh Circuit was entered April 6, 1998. The court of appeals -

denied a timely Petition for Rehearing on May 13, 1998 (App. C).

The jurisdiction of this Court is invoked under 28 U.S.C.

§ 1254(1).

STATUTORY PROVISION AND RULE INVOLVED

28 U.S.C. § 1332 provides, in relevant part:

(a) The district courts shall have original jurisdiction of

all civil actions where the matter in controversy

exceeds the sum or value of [$50,000° ], exclusive of

interest and costs, and is between —

1. citizens of different States;

2. citizens of a State and citizens or subjects

of a foreign state;

3. citizens of different States and in which

citizens or subjects of a foreign state are

additional parties; ... .

For the purposes of this section ...an alien admitted

to the United States for permanent residence shall be

deemed a citizen of the State in which such alien is

domiciled.

Rule 23.2 of the Federal Rules of Civil Procedure provides:

An action brought by or against the members of an

- unincorporated association as a class by naming certain

members as representative parties may be maintained

only if it appears that the representative parties will

fairly and adequately protect the interests of the

association and its members. In the conduct of the

action the court may make appropriate orders

corresponding with those described in Rule 23(d), and

the procedure for dismissal or compromise of the action

shall correspond with that provided in Rule 23(e).

* At the time the action was commenced, the jurisdictional amount

was $50,000.

STATEMENT OF THE CASE

A. Background

The Petitioners believe it might be helpful to the Court to briefly

explain the background of Lloyd’s and the London insurance

market.

Lloyd’s is not itself an insurance company; rather it is a market

place where the business of insurance is carried on by individual

investors/subscribers called “Names.” For administrative ease, the

individual Underwriters are organized into Syndicates wherein each

Underwriter agrees to accept a specific proportion of the

Syndicate’s liabilities. In turn, in underwriting insurance, each

Syndicate assumes a specific percentage of the particular risk

insured.

An entire policy’s limits, or only a portion thereof, may be

placed with Underwriters at Lloyd’s, London. In the latter instance.

the balance of the policy limits may be placed in whole or in part

with insurance companies operating in the London insurance market,

and/or with other insurance companies, including American

insurance companies. The obligation of each Name and each

Company on each respective policy is several and not joint, and

each such Name and/or Company agrees only to be bound for his

or its own percentage of liability, and is not responsible for the

obligation of any co-insurer.

1. A good discussion of the London insurance market, including

Lloyd’s, may be found in Edinburgh Assurance Co. v. R.L. Burns Corp., 479

F. Supp. 138, 144-46 (C.D. Cal. 1979), aff'd in relevant part, 669 F.2d

1259 (9" Cir. 1982). These pages are reprinted at App. F. The court of

appeals was invited to take notice of this case in the jurisdictional

memorandum filed after oral argument. See infra p. 9. The court’s attention

was also invited to the record below, District Court Record Docket Entry

No. 387, Plaintiffs First Set of Interrogatories, London Market Insurers’

Response to Interrogatory No. 8, pp. 33-34, which supported the Burns

description of the London insurance market.

The business of each Syndicate is operated by a Managing

Agent which appoints an Active Underwriter (who is one of the

Names in the Syndicate) to accept risk on its behalf and manage

the Syndicate’s affairs. Each Name delegates complete control of

his insuring activities to the Managing Agent. The Active

Underwriter, as an employee of the Managing Agent, has control

over various accounts in which the funds established for the

payment of claims and discharge of underwriting liabilities are held

in trust for the Names. The Names, by virtue of their contracts

with the Managing Agents, are barred from participating in the

operation of the syndicate’s business, including underwriting, claims

handling, and capital investment. In light of their exclusive control

over the Names’ accounts and the prohibition against control by

the individual Names over any aspect of the insurance business,

London Market Insurers contend that the Active Underwriter of

each involved syndicate is the real party to the controversy for the

purposes of litigation.’

In this case, the Petitioners subscribed policies in favor of

the plaintiffs below over several decades. There were, accordingly,

hundreds of Names and scores of companies alleged to be liable

on the over one hundred twenty contracts of insurance at issue.

B. Proceedings in the District Court

On April 14, 1995, plaintiff Indiana Gas Company Inc. and

two of its wholly-owned subsidiaries, Richmond Gas Corporation

and Terre Haute Gas Corporation (collectively “Indiana Gas”),

2. Although arriving at the wrong result, the New Jersey District

Court decision in Lowsley-Williams v. North River Ins. Co. , 884 F. Supp.

166, 167-68 (D. N.J. 1995) provides a good explanation of the relationship

of the Active Underwriters to the Names. The relevant pages of Lowsley-

Williams are reprinted at App. F. A copy of the joint stipulation of facts

and exhibits filed in the Lowsley-Williams case was filed with the court of

appeals as part of the jurisdictional memorandum submitted post-

argument. See infra p. 9.

ERR Te EP eT aT ree nr

commenced this action. Suit was brought in the United States

District Court for the Northern District of Indiana against seventeen

insurers for breach of contract and fora declaratory judgment as

to their obligations to defend and/or indemnify Indiana Gas, or

predecessor companies, for alleged pollution liabilities arising out

of nine former manufactured gas plants in Indiana.

The Complaint invoked the diversity jurisdiction of the district

court and alleged that Indiana Gas, Richmond Gas, and Terre Haute

Gas were all Indiana corporations with their principal place of

business in Indiana?

The Complaint also alleged as follows:

Upon information and belief, defendant Certain

Underwriters at Lloyd’s, London (“Lloyd’s”) is

comprised of certain syndicates which are located in

and have their principal place of business in London,

England...

In their Amended Answer, London Market Insurers*(“LMI”’)

responded to this allegation, in relevant part, as follows:

3. No party disputed, or now disputes, the citizenship of the plaintiffs

below.

4. “London Market Insurers” was used as a collective reference for

those Certain Underwriters at Lloyd’s, London and certain solvent and

represented London Market Insurance Companies, who or which severally

subscribed, each for his or its own proportionate share, (and not one for

the other) to one or more of the insurance policies at issue in the case.

All but five of the “London Market Companies” were foreign

insurers. None of the five domestic United States insurance corporations who

participated in the London Market Insurance policies at issue was incorporated

or had its principal place of business in Indiana.

London Market Insurers admit that those certain and

indentified Underwriters of Lloyd’s, London, who

subscribed those policies of excess liability insurance

set forth in Exhibit A, are individuals who are members

of various Syndicates which are located in and have

their principal place of business in London, England

A copy of the relevant pleadings may be found at App. D.

Trial was originally scheduled for October 21, 1996.

Discovery concluded in early June 1996, and fourteen dispositive

motions were fully briefed on August 9, 1996. At the time of

briefing, and after court-ordered mediation, five defendants were

left as parties: Aetna Casualty & Surety Company (“Aetna”),

Home Insurance Company (“Home”), Ranger Insurance Company

(“Ranger”). St. Paul Fire & Marine insurance Company and St.

Paul Surplus Lines Insurance Company (collectively “St. Paul’)

and London Market Insurers. At a pre-trial hearing on September

5, 1996, Chief Judge Lee promised a decision on the motions by

the end of September, and adjourned trial until January 21, 1997.

On October 2, 1996, the district court handed down a series

of opinions that decided twelve of the pending motions. Eleven

opinions are reported; the motions are listed below, along with the

parties joining and the disposition.*

Reported At Motion Mevant Disposition

946 F. Supp 627 No Case All Defendants Granted

or Controversy

at Seven Sites

5. By order dated October 2, 1996, the district court denied one

motion as moot; on October 1, the court had requested further briefing

on another motion, which never was decided. The two motions for

summary judgment on the pollution exclusions were decided together.

Reported At Motion Movant Disposition

946 F. Supp. 634 Late Notice All Defendants Denied

951 F. Supp. 759 Bad Faith/ Only Aetna Denied

Punitive

Damages

951 F. Supp. 767 Property All Defendants Granted

Damage except Home

During Policy

Period at

Seven Sites

951 F. Supp. 773 Number of Only Aetna Granted as

Occurrences/ to

Presence of Aggregates

Aggregates Only

951 F. Supp. 780 No Fortuitous All Defendants Granted

Accident or

Occurrence

951 F.Supp. 790 Expected and AllDefendants Denied

Intended

Property Damage

951 F.Supp.797 ISOPollution AllDefendants Granted

Exclusion

London London Market Granted

Market Pollution Insurersonly

Exclusion

(NMA 1685)

Reported At Motion Movant Disposition

951 F. Supp. 806 Property All Defendants Denied

Damage at except Ranger

Greencastle And St. Paul

and Marion

951 F. Supp. 811 St. Paul St. Paul only Granted

Excess

Policies

951 F.Supp. 816 As Damages All Defendants Denied

The granting of the motions effectively terminated the litigation

in the defendants’ favor, with the exception of a bad faith claim

against Aetna, Indiana Gas Company’s primary insurer, which

remained pending.

After the motions were decided, but prior to the entry of

judgment, Aetna settled with Indiana Gas and was dismissed from

the case.

Judgment was thereafter entered, and an appeal was taken

by Indiana Gas.

C. Proceedings in the Court of Appeals

Indiana Gas filed a notice of appeal on January 8, 1997.

Believing the judgment not in proper form, the defendants below

moved to alter or correct the judgment under Fed. R. Civ. P. 59(e)

or 60(e). The district court amended the judgment on February 10,

1997, implicitly disposing of the motion. Indiana Gas thereafter

filed another notice of appeal. Both appeals were subsequently

consolidatedby the Seventh Circuit, and the appeal was fully briefed

on November 10, 1997. Oral argument was held on January 6,

1998.

ote Ale

The appellants’ counsel had no sooner begun his argument

when the court inquired as to the citizenship of the Lloyd’s

Underwriters. Since that was the first time subject matter

jurisdiction had been questioned, the parties were not prepared

to address the issue at the hearing and argument on the merits

continued. The court thereafter invited briefing on the jurisdictional

question, and invited the parties to amend their pleadings under

28 U.S.C. § 1653, or alternatively invited Indiana Gas to dismiss

Underwriters as parties. A copy of this order may be found at

App. E. Both Indiana Gas and LMI filed memoranda addressing

the question, each contending that the court had subject matter

jurisdiction.

In their jurisdictional memorandum, LMI contended that,

because of the unique structure of the Lloyd’s Market, the Active

Underwriter of each Syndicate was the real party in controversy

for purposes of diversity, and only the Active Underwriter’s

citizenship was determinative. LMI moved to amend their Amended

Answer to more particularly allege the relationship of the Active

Underwriter to the Names in a Lloyd’s Syndicate. Counse! for

LMI also explained, in a declaration, the steps undertaken to

ascertain whether any of the Names was a citizen of Indiana as of

the commencement of the action. There was, in fact, one identified

Indiana Name.°®

Indiana Gas, in its jurisdictional memorandum, offered to

dismiss any Indiana Names from the litigation.

The Seventh Circuit, in a 2-] decision, held that the

Syndicates were unincorporated associations (a finding directly

6. On January 27, 1998 LMI filed a submission pursuant to the court's

order of January 6, 1998 concerning jurisdiction. As part of the submission,

LMI filed a copy of the joint stipulation of facts and supporting documentation

filed in the Lowsley-Williams case, supra, note 2. That stipulation was offered

to the court as being representative of the facts concerning the relationship

between the Active Underwriters and the names in this case, mutatis mutandis.

opposed to the position taken by LMI). The court then reasoned

that, since the Syndicates were not corporations, the citizenship

of each member had to be considered for diversity purposes.

Moreover, the court held that since the Names were not parties in

their own right, Indiana Gas couid not dismiss individual Names

to preserve jurisdiction. As there was one Indiana Name, the

Seventh Circuit reversed the judgment of the district court and

ordered the judgment vacated and the action dismissed. Rejecting

LMI’s analogy of the Syndicates to the business trusts at issue in

Navarro Savings Ass'n v. Lee, 446 U.S. 458 (1980) (“Navarro”),

the panel held that this Court’s decision in Carden v. Arkoma

Assocs., 494 U.S. 185 (1990) (“Carden”) was dispositive.

In specifically rejecting the Sixth Circuit’s holding in Certain

Interested Underwriters at Lloyd's, London v. Layne, 26 F.3d

39 (6" Cir. 1994) (“Layne”) (citizenship of the Active Underwriter

controlled for diversity purposes), the panel recognized that its

decision created a circuit conflict, and therefore circulated the

opinion to all judges in active service for en banc consideration

prior to its release, pursuant to 7" Cir. Rule 40(e). See Indiana

Gas, A-11. A majority did not favor en banc review.

LMI thereafter filed a timely motion for panel rehearing. Since

the court, in rejecting LMI’s contention, held that the Lloyd’s

Syndicates were unincorporated associations, LMI requested that

consideration be given to Fed. R. Civ. P. 23.2, thus permitting the

Syndicates to be treated as a class or classes. Because the Active

Underwriters were all diverse from the plaintiffs, complete diversity

would then exist under Supreme Tribe of Ben Hur v. Cauble, 255

U.S. 356 (1921) (“Cauble”).

By Opinion dated May 13, 1998, the panel majority denied

the petition.’

7. Circuit Judge Evans, who had dissented from the original decision, voted

against the rehearing petition, but did not join in the panel’s opinion.

| (iain

Although the court ruled that LMI had waived the right to

seek class action treatment by failing to include such a request in

their jurisdictional memorandums the panel also ruled on the merits

of the class action question. The panel held that Lloyd’s

Syndicates could not be treated as a class, as the Active

Underwriters did not have claims of their own, but only claims as

members of the Syndicates.

REASONS FOR GRANTING THE WRIT

The immediate question presented in this case is whether a

federal forum is available to Lloyd’s underwriters and their

American policyholders for resolution of contractual disputes —

an issue that has divided the lower courts over the last decade.

Moreover, this case also presents larger issues of the nature and

the identity of the real parties to the controversy, and (if Petitioners’

first argument is rejected) of the use of Fed. R. Civ. P. 23.2 asa

vehicle to resolve certain commercial disputes. These issues have

attracted much scholarly commentary: G. David Porter,

“Incorporating” Limited Partnerships into Federal Diversity

Jurisdiction: Correcting Carden v. Arkoma Associates 65 Notre

Dame L. Rev. 287 (1990); John McCormack, Carden v. Arkoma

Associates: The Citizenship of Limited Partnerships,

Associations, and Juridical Entities — A Chilling Future for

Federal Diversity Jurisdiction, 27 New Eng. L. Rev. 505 (1992);

Charles A. Szypszak, Jural Entities, Real Parties in Controversy

and Representative Litigants: A United Approach to the

Diversity Jurisdiction Requirement for Business Organizations

44 Me. L. Rev. | (1992). :

The issue arises in the context of the diversity jurisdiction

conferred by 28 U.S.C. § 1332. As part of the dramatic increase

in insurance litigation in the last twenty years, Underwriters at

8. Such a request had not been made since unincorporated

association status for the Syndicates had been specifically denied by

Underwriters.

iawae: - oat

Lloyd’s have frequently been involved as defendants in “long-tail”

insurance claims. If the decision below is not reversed, these

Underwriters, almost all of whom are aliens and who therefore

clearly deserve the protections of a federal forum under the

diversity jurisdiction,’ will be denied that protection.

THE PETITION SHOULD BE GRANTED TO

RESOLVE THE CIRCUIT CONFLICT REGARDING THE

APPLICATION OF THE DIVERSITY REQUIREMENT TO

LLOYD’S UNDERWRITERS.

This Court should grant the petition to resolve the conflict

between the Sixth and Seventh Circuits as to the requirements for

Lloyd’s Underwniters to establish diversity jurisdiction — a conflict

that will inevitably cause uncertainty in other courts. The Seventh

Circuit acknowledged that its decision created such a conflict.

Indiana Gas, A-11.

Guidance from this Court is plainly needed. The issue of the

diversity of Lloyd’s Underwniters has been the subject of at least

eleven opinions in the district courts over the last ten years, see,

e.g., K. Bell & Assocs. v. Lloyd’s Underwriters, 1998 W.L.

274346 (S.D.N.Y) at *4, and cases cited therein. An entire

subsection of a leading treatise is devoted to this issue. 15 James

W. Moore, et al., Moore's Federal Practice § 102.57[4] (3d ed.

1997).

The Seventh Circuit acknowledged that courts were split over

this question, with some analogizing the Active Underwriters of

9. Diversity jurisdiction over aliens provides the federal courts with a

“protective jurisdiction over matters implicating international relations where the

national interest is paramount.” Sadat v. Mertes, 615 F.2d 1176, 1182 (7® Cir.

1980).

the Syndicates to trustees, similar to those discussed in Navarro,

while others treated the Syndicates as partnerships under Carden.

Indiana Gas, A-10.

The Second Circuit has also acknowledged the difference in

approach without deciding it. Advani Enters., Inc. v. Underwriters

at Lloyds, 140 F.3d 157, 160-61 (2d Cir. 1998). The issue is being

briefed in two appeals pending in the Third Circuit, Chemical

Leaman Tank Lines, Inc. v. The Aetna Cas. & Surety Co., Nos.

97-5735, 97-5736 (Docketed November 25, 1997) (to be argued

September 15, 1998); GAF Corp. v. Hartford Acc. & Indem.

Co., No. 98-5073 (Docketed January 21, 1998), (to be argued

September 15, 1998); and one in the Second Circuit, E. R. Squibb

& Sons, Inc. v. Accident & Cas. Ins. Co. et al., Nos. 97-94 68

(L), 97-9470 (CON), 97-9472 (CON), 97-9474 (CON) , 97-9476

(CON), 97-9484 (XAT) (Docketed November 10, 1997) (August

10, 1998 before Calabresi, Jacobs and Straub, JJ.).

This circuit conflict is not only of interest to Underwriters.

As noted above, this jurisdictional question is of interest nationally

because of the frequent presence of Underwriters at Lloyd’s in

complex multi-state, long-tail claims involving mass torts and

asbestos or pollution liability.'° Whether a federal forum is available

to hear such complex litigation is of importance not only to domestic

insurers but to their American policyholders as well.

10. Obviously, Underwriters at Lloyd’s are involved in other types of

insurance litigation as well, including those involving marine and aviation policies.

A search for “Underwriters at Lloyd’s, London” in case titles obtained 581 hits

in the Allfeds Westlaw® database. While some of those cases would be

duplicative, this search indicates the breadth of the matter.

Il.

THE PETITION SHOULD BE GRANTED BECAUSE

THE COURT BELOW DID NOT APPLY THE REAL

PARTY TO THE CONTROVERSY TEST ARTICULATED

BY THIS COURT IN THE NAVARRO CASE,

The Seventh Circuit’s opinion reflects several

misunderstandings concerning the nature of this suit and the

structure and operation of Lloyd’s Underwriters that may have led

to the court’s erroneous conclusion that jurisdiction did not exist.

The Seventh Circuit held that the Names were not party

defendants. /ndiana Gas, A-5. This was incorrect as Indiana Gas

sued “Certain Underwriters at Lloyd’s, London,” and those

defendants clearly identified themselves to the Seventh Circuit as

such. See id. at A-3: “Underwriters at Lloyd’s, London, defendants

below, are natural persons and sole traders, subscribing to policies

of insurance each for his or her own part and not one for the

other.” While the Names were members of various Syndicates,

the Syndicates were not the defendants; rather, the defendants

were Names sued as subscribers to the policy.

This misunderstanding led the Seventh Circuit to find that the

Syndicates, and not the Names, were parties, and that because the

Syndicates were not corporations, they were treated as

unincorporated associations, which, in turn, led to the finding that,

like the citizenship of every partner in a partnership, the citizenship

of every Name controlled for purposes of diversity. /d. at A-6-7.

In so doing, the court of appeals relied on this Court’s opinion in

Carden."'

11. A Syndicate is of course not a partnership. Each Name has several

liability; in this sense, it is more like a corporation. Unlike a partnership, each

Name does not have the authority to bind every other Name; only the Active

(Cont'd)

CAE Bt OC. cee?

Carden is inapplicable to this case because Carden dealt

exclusively with the situation where an artificial entity, i.e. a limited

partnership, was the defendant.

The question presented today is not which of various

parties before the Court should be considered for

purposes of determining whether there is complete

diversity of citizenship, a question that will generally

be answered by application of the “real party to the

controversy” test. There are not, as the dissent assumes,

multiple respondents before the Court, but only one:

the artificial entity called Arkoma Associates, a limited

partnership.

Carden, 494 U.S. at 188, n.1.

The question presented in this case is which of various parties

before the court should be considered for determining whether

there is a complete diversity of citizenship. As noted in Carden,

the question should be answered by application of the “real party

to the controversy” test.

This Court in Navarro established that only the real party to

a controversy is considered for diversity purposes. In the context

of a business trust, the real party to a controversy is one who has

powers to “hold, manage and dispose of assets of others.” Navarro,

446 U.S. at 464.

(Cont'd)

Underwriter does. See generally, Daly v. Lime Street Underwriting Agencies

Ltd., [1987] 2 FTLR 277 (Q.B.); John Hayter Underwriting Agency Ltd. v.

R.B.H.S. Agencies, [1977] 2 Lloyd’s Rep. 105 (C.A. 1976). The Court of

Appeals also held, incorrectly and without citation to authority, that the Names

cannot be sued by the insured. /ndiana Gas, A-9, A-94. London Market

Insurers are aware of no such prohibition.

The Sixth Circuit recognized that the real party to the

controversy test was to be applied to cases involving Underwriters.

Certain Interested Underwriters at Lloyd's, London v. Layne,

26 F.3d 39, 42 (6" Cir. 1994). That court correctly framed the

central issue as follows: “[W]hose citizenship controls: the agent-

underwriters or the syndicate members?” Jd.”

This Court in Navarro emphasized three pertinent points:

1. Citizenship for diversity purposes is determined by

identifying the real and substantial parties to the

controversy;

2. Federal courts must disregard nominal or formal

parties; and

3. Artificial entities, other than corporations, remain

mere collections of individuals, and when the

persons composing such associations sue in their

collective name, the individuals are the parties

whose citizenship determines the diversity

jurisdiction of a federal court.

Navarro, 446 U.S. at 460-61.

This Court also noted that,

[t]here is a rough symmetry between the “real party

in interest” standard of [Fed. R. Civ. P.] Rulel 7(a)

and the rule that diversity jurisdiction depends upon

the citizenship of real parties to the controversy. But

12. Underwriters do not agree with the rationale of Layne that the

Names are undisclosed principals. However, they agree with the holding

that the Active Underwriters are the real parties to the controversy. Layne,

26 F.3d at 43. See above.

the two rules serve different purposes and need not

produce identical outcomes in all cases.

Navarro, 446 U.S. at 460, n. 9.

In this case, the Syndicates were not sued; the Names were.

While the Names may be parties in interest under Rule 17(a), only

the Active Underwriters of the Syndicates are the real parties to

the controversy.'* Because of the extensive delegation of authority

of the Names to the Active Underwriters, and their exclusive

control over the accounts held for those Underwriters, the Active

Underwriters are vested with the requisite control which Navarro

identified with the Trustees as the real parties to the controversy.

Funds are paid at the direction of the Active Underwriters. There

is a fiduciary duty running from the Active Underwriters to the

other Names. An Active Underwriter acts as the representative

of each Name in his or her Syndicate in all affairs regarding

underwriting and claims handling practices, has the authority to

enter into contractual arrangements on behalf of each Name, and

can direct the disposal of his or her assets. And, of course, the

Active Underwriters do have a personal stake in the litigation, as

they themselves are Names, and thus truly represent the interest

of the other Names for whom they are fiduciaries. See supra note

2 and accompanying text on p.4.

Every court of appeals, including the Seventh Circuit, has

entertained appeals involving Underwriters at Lloyd’s without

questioning jurisdiction over them.'* Indeed, up until Jndiana

13. A Syndicate, unlike the partnership in Carden, has no legal

existence. See, e.g., Roby v. Corp. of Lloyd's, 796 F. Supp. 103, 111 (S.D.N.Y.

1992), aff'd on other grounds, 996 F.2d 1353 (2d Cir. 1993), cert. den., 510

U.S. 945 (1993): “In sum: English law controls, and under English Law the

syndicates have no legal existence.”

14. Putnam Resources v. Pateman, 958 F.2d 448 (1* Cir. 1992);

(Cont’d)

Gas, eleven courts of appeals simply assumed jurisdiction even

after this Court’s opinion in Carden. The sole exception was the

Sixth Circuit in Layne, which considered the question and upheld

jurisdiction.

Given the subscription nature of the London Insurance Market,

and particularly that of Lloyd’s, where Names delegate complete

authority over their underwriting affairs to the Active Underwriters,

those Active Underwriters are the real parties to the controversy.

Thus, under Navarro, only their citizenship should be considered

in determining jurisdiction. Cf. Aetna Cas. & Surety Co. v. Iso-

Tex Inc., 75 F.3d 216, 218 (S® Cir. 1996) (single subscribing insurer

on multi-insurer policy was real and substantial party to controversy

such that action could be maintained in its name alone). Moreover,

as noted above, Active Underwriters are themselves Names and

are liable on the policy; thus they have the requisite personal stake

in the litigation under Navarro. This case therefore presents the

(Cont'd)

Landoil-Resources Corp. v. Alexander & Alexander Servs., Inc., 918 F.2d

1039 (2d Cir. 1990); Dresser Indus. Inc. v. Underwriters at Lloyd’s of London,

106 F.3d 494 (3d Cir. 1997) (holding that diversity existed even though aliens

were both plaintiffs and defendants); Mitcheson v. Harris, 955 F.2d 235 (4"

Cir. 1992); Real Asset Mgmt., Inc. v. Lloyd's of London, 61 F.3d 1223 (5"

Cir. 1995); Logan v. Lloyd’s Underwriters, 888 F.2d 1391 (6" Cir. 1989);

Certain Underwriters of Lloyd's and Companies v. General Accident Ins.

Co. of America, 909 F.2d 228 (7® Cir. 1990); Underwriters at Lloyd's London

v. Pike, 977 F.2d 1278 (8" Cir 1992); National Am. Ins. Co. v. Certain

Underwriters at Lloyd’s, London, 93 F.3d 529 (9® Cir. 1996); Clark v. Brien,

59 F.3d 1682 (10" Cir. 1995), cert. den., 516 U.S. 1084 (1996); Goiden

Dozr Jewelry Creations, Inc. v. Lloyd's Underwriter’s Non-Marine Ass'n, 8

F.3d 760 (11 Cir. 1993); Independent Retrochemical Corp. v. Aetna Cas.

& Sur. Co., 944 F.2d 940 (D.C. Cir. 1991), cert. den., 503 U.S. 1011 (1992).

See also Smith v. Lloyd's of London, 568 F.2d 1115, 1116,n.3 (5 Cir. 1978)

(wherein the court recognized diversity jurisdiction even though it understood

Lloyd's to be “an exchange or a market where various individuals or groups bid

on the nght to insure a given risk”).

Court with the opportunity of clarifying the Navarro requirements

for a real party to the controversy, and of assuring that the protection

of diversity jurisdiction is afforded to those parties who are clearly

entitled to it.

Ii.

THE PETITION SHOULD BE GRANTED

BECAUSE THE COURT BELOW FAILED TO

PROPERLY CONSIDER THE ACTIVE UNDERWRITERS’

REPRESENTATIVE STATUS.

In their petition for rehearing in the court below, LMI argued

that, since the court of appeals had rejected LMI’s contention and

found that the Syndicates were unincorporated associations, the court

should consider treating the action as one brought under Fed. R. Civ.

P. 23.2.'° The court had this power under 28 U.S.C.

§ 1653. Curley v. Brignoli, Curley & Roberts Associates, 915 F.2d

81, 88 (2d Cir. 1990), cert. denied, 499 U.S. 955 (1991) (“Brignoli’),

citing International Bhd. of Boilermakers v. Local Lodge D354,

897 F.2d 1400, 1402 (7 Cir. 1990). Under long-standing authority,

only the citizenship of the named representative ofa class is considered

in determining diversity jurisdiction. Snyder v. Harris, 394 U.S. 332,

340 (1969); Cauble; see also Brignoli, 915 F.2d at 87; 7A Wright,

Miller & Kane, Federal Practice & Procedure § 1755 (2d ed. 1986).

The court below, after first remarking that LMI had forfeited

this argument by not raising it in their jurisdictional memorandum,

Indiana Gas, A-94, went on to consider the argument on its merits. '°

15. For the text of Rule 23.2, see supra p. 2.

16. It is difficult to see how the ground could be forfeited when it

was raised for the first time by the court’s decision. Indeed, to resolve

such unforeseen holdings is one of the purposes of rehearing.

The court held that the class action provision of Fed. R.

Civ. P. 23.2 could not be invoked. The panel majority'’ concluded

that the Active Underwriters were representing the Names (indeed,

had to represent them because the Names could not be sued

under English law);"* however, the court continued, the Active

Underwriters could not be representative parties for purposes of

the Rule and of determining jurisdiction (under Cauble) because

they did not have claims of their own, and the citizenship of the

parties they represented thus had to be considered. /ndiana Gas,

A-94-96.

This reasoning is plainly incorrect given the fact that the

Active Underwriters are themselves Names and do have a stake

in the litigation.

The panel’s characterization of Cauble is equally

unpersuasive. The Seventh Circuit stated that this Court:

held in Cauble that if there is complete diversity

between named class representatives and the adverse

parties, the district court may adjudicate the right of

other class members under its supplemental

jurisdiction . . . Cauble deals with a situation in which

the parties have independent claims which could be

fully resolved if other persons similarly situated were

unaffected by the case.

Indiana Gas, A-95.

If this analogy is correct, it is difficult to see what class action

would ever be appropriate, and when the Cauble rule would ever

17. Judge Evans, while voting to deny the petition, did not join in the

opinion denying rehearing.

18. This incorrect statement was made without any citation to authority.

See supra note 11.

apply under Rule 23.2. The mere fact of commonality would, at

a minimum, implicate collateral estoppel concerns, thereby

potentially affecting similarly situated persons and requiring that

the citizenship of every class member be considered. '”

Since it is plain that the Active Underwriters will adequately

and fairly protect the interests of their Names, the court of appeals

erred in not permitting the Active Underwriters to represent the

Names under Fed. R. Civ. P. 23.2 and in not determining diversity

under Cauble.

THE PETITION SHOULD BE GRANTED SO THIS

COURT MAY CLARIFY THE STANDARD FOR USE OF

FED. R. CIV. P. 23.2.

This Court did not reach the question of the applicability of

Fed. R. Civ. P. 23.2 to unincorporated associations in Navarro,

(even though that question was presented, see 446 U.S. at 459,

n.6) because diversity jurisdiction was found to exist with respect

to the business trusts at issue in that matter. If this Court were to

agree with the Seventh Circuit that this case is governed by Carden,

the important question of the scope and applicability of Rule 23.2

would be squarely presented.

The circuits are split as to whether, in view of the Advisory

Committee’s Note to Rule 23.2,” the Rule is available where state

19. Most courts hold that the only requirement imposed by Fed. R. Civ. P.

23.2 is fair and adequate representation, and that the other requirements of Rule 23

do not apply. Brignoli, 915 F.2d at 85. The question whether the amount in

controversy requirement would be met was not considered by the court below.

20. The Advisory Committee’s Note of 1966 to Rule 23.2, in relevant part,

States:

(Cont'd)

law permits unincorporated associations to sue and be sued as

jural entities. Compare Northbrook Excess and Surplus Ins. Co.

v. Medical Malpractice Joint Underwriting Ass'n of Mass., 900

F.2d 476, 478-80 (Ist Cir. 1990) (Rule 23.2 not available) with

Brignoli, 915 F.2d at 87 (Rule 23.2 available).

The commentators agree that Brignoli 's reading of Rule 23.2

is the better view. 5 James W. Moore, et al., Moore's Federal

Practice §§ 23.2.06-23.207 (3ded. 1997); 7C Wright, Miller &

Kane, Federal Practice & Procedure § 1861 (2d ed. 1986).

The Seventh Circuit rejected the application of Fed. R. Civ.

P. 23.2 to Underwriters even though a district court within that

circuit has applied the rule in analogous circumstances. Hartford

Accident & Indem. Co. v. Dresser Indus. Inc., 1994 U.S. Dist.

LEXIS 1763 (N.D. Il. Feb. 16, 1994).?!

The case law in the Fifth Circuit is conflicting. In a decision

involving a Texas Lloyd’s insurance group,” the Fifth Circuit ruled

(Cont'd)

Although an action by or against representatives of the membership

of an unincorporated association has often been viewed as a class

action, the real or main purpose of this characterization has been to

give “entity treatment” to the association when for formal reasons it

cannot sue or be sued as a jural person under Rule 17(b). . . . Rule

23.2 deals separately with these actions, referring where appropriate

to Rule 23. (Citations omitted).

21. The district court permitted the intervention of two insurers in an action on

their own behalf and as representatives of a class consisting of members of Industrial

Risk Insurers (“IRI”), a group of insurance companies which obligated themselves

on a large risk policy to the extent of a fixed percentage equal to their participation in

IRL. The arrangement was thus similar to a Lloyd’s policy.

22. See Edwin W. Patterson, Essentials of Insurance Law § 9 at 48-49 (2d

ed. 1957). A Texas Lloyds insurance group is organized similarly to Lloyd’s of

London but has no connection with Lloyd’s of London.

that an attorney-in-fact could not serve as representative under

Fed. R. Civ. P. 23.2, and that diversity had to be determined by the

citizenship of each underwriter. Royal Ins. Co. of America v.

Quinn-L Capital Corp., 3 F.3d 877, 882-83 (5" Cir. 1993), cert.

den., 511 U.S. 1032 (1994); see also Massey v. State Farm Lloyds

Ins. Co., 993 F. Supp. 568, 570 (S.D. Tex. 1998) (following

Quinn-L).

Another panel of the Fifth Circuit held differently in a situation

almost identical to Quinn-L. Aetna Cas. & Surety Co. v. Iso-Tex.

Inc., 75 F.3d 216 (Sth Cir. 1996).

This Court should take the opportunity to clarify the scope

and applicability of Rule 23.2.

CONCLUSION

This case presents the Court with a unique opportunity to

clarify the application of the “real party to the controversy” test of

Navarro — a test that is vital to the proper administration of

diversity jurisdiction — and, if the circuit conflict on the question is

resolved in favor of the court below, to define the proper use of

representative parties under Fed. R. Civ. P. 23.2.

If the opinion below is allowed to stand, a federal forum will

be foreclosed to many complex insurance disputes among persons

of diverse citizenship. This would constitute an improper restriction

on the exercise of diversity jurisdiction, and would be especially

egregious to Underwriters, the majority of whom are foreign

nationals.

For the foregoing reasons, the Petition for Writ of Certiorari

should be granted.

Respectfully submitted,

THOMAS J. QUINN

STEPHEN T. ROBERTS

MARY ANN D’AMATO

Counsel of Record

STEVEN A. ACCINELLI

MENDES & MOUNT, LLP

750 Seventh Avenue

New York, NY 10019

(212)261-8000

Of Counsel:

DAVID L. SHAPIRO

1575 Massachusetts Avenue

Cambridge, MA 02138

Attorneys for Petitioners

APPENDIX

EEE

APPENDIX A — OPINION OF THE UNITED STATES

COURT OF APPEALS FOR THE SEVENTH CIRCUIT IN

INDIANA GAS COMPANY, INC., et al. v. HOME

INSURANCE COMPANY, et al. DECIDED APRIL 6, 1998

IN THE

UNITED STATES COURT OF APPEALS

FOR THE SEVENTH CIRCUIT

Nos. 97-1328 & 97-1381

INDIANA GAS COMPANY, INC., et ai.,

Plaintiffs-Appellants,

Vv.

HOME INSURANCE COMPANY, et ai.,

Defendants-Appellees.

Appeals from the United States District Court

for the Northern District of Indiana, Fort Wayne Division.

No. 1:95cv101 — William C. Lee, Chief Judge.

ARGUED JANUARY 6, 1998 — DECIDED APRIL 6, 1998

Before POSNER, Chief Judge, and EASTERBROOK and

EVANS, Circuit Judges.

EASTERBROOK, Circuit Judge. Long ago, predecessors

to Indiana Gas Company manufactured gas by heating

coal and oil at nine sites in Indiana. The principal residual was

coal tar, a sludge containing pitch plus pyridine and additional

organic compounds that are raw materials for the production of

Appendix A

paints, dyes, plastics, pharmaceuticals, and other synthetic

products. Some coal tar was discarded before these beneficial

uses were discovered, additional by-products of gas

manufacturing were not suitable feedstocks for other industries,

and at all events production often exceeded the demand. What

could not be sold or given away was placed in containment

structures of various kinds, from which it has begun to leak. At

two sites (and perhaps others) residuals were placed in holder

pits and used as fill to level off the ground. Coal tar has some

dangerous constituents, so Indiana Gas faces cleanup costs, for

which it sought indemnity from its insurers. When the insurers

refused, Indiana Gas and affiliated companies (collectively

“Indiana Gas”) initiated this comprehensive action against many

of the firms that issued policies over the course of the last century,

seeking a declaratory judgment that would require them to cover

the cleanup costs and liability to third parties that Indiana Gas

foresees. In order to resolve the suit the district court addressed

many issues, such as whether the coal tar’s escape was inevitable

or may be characterized as an “accident” covered by the policies,

and if so whether the pollution exclusions in many of the policies

negate indemnity. After 11 published opinions terminated most

claims in defendants’ favor, 946 F. Supp. 627-39; 951 F. Supp.

759-820, settlements were reached on the rest, and Indiana Gas

has appealed.

Searching for a comprehensive solution to insurance-

coverage questions creates a potential problem when jurisdiction

depends on 28 U.S.C. § 1332 (in this case, § 1332(a)(3)). The

more defendants, the more likely it is that one of them will have

the same citizenship as one of the plaintiffs, spoiling the “complete

diversity” that under Strawbridge v. Curtiss, 7 U.S. (3 Cranch)

267 (1806), is essential. Plaintiffs are incorporated and have their

principal places of business in Indiana, so the suit is untenable if

Appendix A

any defendant must be treated as a citizen of Indiana. The

complaint named among the defendants “Certain Underwriters at

Lloyd’s, London” and “Certain London Market Insurance

Companies.” Which underwriters and companies are the “certain”

underwriters and companies? What kinds of entities are they, and

what rules govern ascertainment of their citizenships? The

complaint does not say, and the district judge did not require

Indiana Gas to be more specific. The London Market Insurers

inform us that all but five of the “companies” are corporations

organized under the law of the United Kingdom, with principal

places of business there, and that none of the five domestic

corporations is incorporated or has a principal place of business

in Indiana. But what is the citizenship of the “underwriters”? A

syndicate that underwrites insurance through the exchange at

Lloyd’s can have hundreds of members (known as "names"),

located throughout the world, and any given policy is underwritten

by multiple syndicates. Indiana Gas’s brief asserts: “Defendants

Certain Underwriters at Lloyd’s, London and Certain London

Market Insurers (“London”) are various corporations and

syndicates, none of which is incorporated or maintains its principal

place of business in Indiana.” This treats each syndicate as an

entity with a single citizenship taken from its principal place of

business. The London Market Insurers’ brief, by contrast, treats

the syndicates as unincorporated associations: “Underwriters at

Lloyd’s, London, defendants below, are natural persons and sole

traders, subscribing to policies of insurance each for his or her

own part and not one for the other. They are members of various

syndicates which are located in and have their principal place of

business in London, England.” On this view the right parties are

not the syndicates but either (a) the persons who subscribed to

the policies on behalf of the syndicates, or (b) all of the names.

Every name in a syndicate faces unlimited personal liability,

like a partner in a general partnership. Syndicates are run, however,

Appendix A

much like limited partnerships, with a lead member (the “active

underwriter” or “managing agent”) able to transact business

without consulting the investors. Descriptions of the London

insurance market and the organization of underwriting syndicates

at Lloyd’s may be found in Daly v. Lime Street Underwriting

Agencies Ltd., [1987] 2 FTLR 277 (Q.B.); John Hayter

Underwriting Agency Ltd. v. R.B.H.S. Agencies, [1977] 2 Lloyd’s

Rep. 105 (C.A. 1976); and Edinburgh Assurance Co. v. R.L.

Burns Corp., 479 F. Supp. 138, 145-46 (C.D. Cal. 1979), affirmed

(with an immaterial exception), 669 F.2d 1259 (9th Cir. 1982).

Corporate citizenship is specified by 28 U.S.C. § 1332 (c)(1):

a corporation is deemed a citizen of the jurisdiction where it is

incorporated, plus the jurisdiction in which it has its principal

place of business. (incorporated business entities, however,

are treated as citizens of every jurisdiction in which any equity

investor or member is a citizen. Thus both general and limited

partnerships are citizens of every jurisdiction of which any partner

is a citizen. Carden v. Arkoma Associates, 494 U.S. 185 (1990);

Guaranty National Title Co. v. J.E.G. Associates, 101 F.3d 57

(7th Cir. 1996). Membership associations such as labor unions,

joint stock companies, and joint ventures take the citizenship of

each member. Steelworkers v. R.H. Bouligny, Inc., 382 U.S. 145

(1965); Great Southern Fire Proof Hotel Co. v. Jones, 177 U.S.

449 (1900). Underwriting syndicates are not corporations, and,

because a court has a duty to ensure that subject-matter

jurisdiction is present even if the parties disregard the issue, we

inquired at oral argument whether, when this case began (the only

relevant time, see Denlinger v. Brennan, 87 F.3d 214 (7th Cir.

1996)), any of the names in any of the syndicates was a citizen of

Indiana. None of the lawyers knew, so we directed Indiana Gas

and the London Market Insurers to supplement the record with

the necessary information. We also extended to Indiana Gas the

ted Misa RA RAP O REE

Appendix A

option of dismissing the London syndicates in order to ensure

complete diversity and permit final resolution of its claims against

its other insurers, see Newman-Green, Inc. v. Alfonzo-Larrain,

490 U.S. 826 (1989), and offered all parties an opportunity to

address the legal significance of the names’ citizenship.

All parties other than Indiana Gas and the London Market

Insurers have passed on the Opportunity to discuss the

jurisdictional consequences of the names’ citizenship, although

the issue imperils the judgment with respect to every party. After

a search of their records, the London Market Insurers inform us

that “there is at least one subscribing name who was domiciled in

Indiana as of the date of the filing of the Complaint.” For its part,

Indiana Gas has volunteered to dismiss any names who were

citizens of Indiana when the complaint was filed. This offer is

pointless, for the names are not parties to begin with and therefore

cannot be dismissed. Either the active underwriters or the

syndicates are the right parties; no view of the situation makes

the names parties in their own right. It may be that the active

underwriters or syndicates have multiple citizenships, but this

does not imply that there are multiple parties. See Carden, 494

U.S. at 190 n.2. Indiana Gas can no more dismiss individual

names than it could sue a partnership and “dismiss” any partners

who are citizens of Indiana. A syndicate is in or out as a unit.

Indiana Gas had a chance under Newman-Green to dismiss the

London underwriting syndicates, so that it could proceed against

the other insurers. It elected not to do so. As a result, we must

decide whether the citizenship of the underwriters is the citizenship

of every name, or only of the active underwriter who acts as the

managing agent.

An underwriting syndicate at Lloyd’s has the personal-liability

characteristics of a general partnership and the management

Appendix A

structure of a limited partnership. It is not incorporated and does

not have the structure of a trust — to quote again from the London

Market Insurers’ brief, the names “are natural persons and sole

traders, subscribing to policies of insurance each for his

or her own part and not one for the other. They are members of

various syndicates” (emphasis added). General partnerships,

limited partnerships, joint stock companies, and unincorporated

membership associations all are treated as citizens of every state

of which any partner or member is a citizen. See Carden (general

and limited partnerships); Bouligny (unincorporated associations);

Chapman v. Barney, 129 U.S. 677 (1889) (joint stock company).

It follows that the underwniting syndicates have the citizenships

of every name. (They could have other citizenships as well. Section

1332(c)(1) creates a special rule for insurers in “direct actions”

— that is, cases in which a person with a claim against the insured

sues the insurer directly. In direct actions insurers have not only

their normal citizenship(s), but also the citizenship(s) of the

insured. But as this is not a direct action, this aspect of

§1332(c)(1) does not matter.)

Both Indiana Gas and the London Market Insurers observe

that English law permits the active underwriters to sue and be

sued as representatives of the names, but the fact that the names

are not parties does not distinguish the syndicates from

partnerships, which (depending on the jurisdiction) are sued either

in their own names or in the names of selected partners. Likewise

the fact that the underwriting syndicates are unusual organizations,

with some properties of general partnerships, some of limited

partnerships, some of joint stock companies, and some of trusts

(on which more below) does not affect the jurisdictional inquiry.

Carden articulated a general rule: every association of a common-

law jurisdiction other than a corporation is to be treated like a

partnership. The reference to “common-law jurisdiction” in the

‘

Appendix A

preceding sentence acknowledges the holding of Puerto Rico vy.

Russell & Co.,288 U.S. 476 (1933), that the civil-law entity known

as a sociedad en comandita is to be treated like a corporation.

Carden tells us that this holding is not to be extended:

Bouligny[,] . . . in reaffirming “the doctrinal wall of

Chapman v. Barney,” . . . explained Russell as a

case resolving the distinctive problem “of fitting an

exotic creation of the civil law... into a federal

scheme which knew it not.” 382 U.S., at 151. There

could be no doubt, after Bouligny, that at least

common-law entities (and likely all entities beyond

the Puerto Rican sociedad en comandita) would be

treated for purposes of the diversity statute pursuant

to what Russell called “the tradition of the common

law,” which is “to treat as legal persons only

incorporated groups and to assimilate all others to

partnerships.” 288 U.S., at 480.

494 U.S. at 190 (footnote omitted). This approach reflects a

strong reluctance to extend the diversity jurisdiction by judicial

interpretation — a reluctance that has characterized the Supreme

Court’s jurisprudence ever since Strawbridge held that complete

diversity is essential. Congress may choose to establish special

rules for some kinds of associations, as it has done in § 1332(c)

for corporations, decedents’ estates, and insurers named as

defendants in direct actions, but when the statute is silent we

apply the norm that all unincorporated associations are treated as

partnerships.

This sets up the London Market Insurers’ principal position:

that the syndicates are not juridical entities — they can’t sue or

be sued — and therefore are not “associations” at all. They must

Appendix A

be treated like trusts, the argument goes, because the active

underwriters serve the function of trustees protecting the interests

of the other names and litigating on their behalf. Trusts take the

citizenship of the trustees rather than of the beneficiaries. Navarro

Savings Association v. Lee, 446 U.S. 458 (1980). One difficulty

with the London Market Insurers’ position is that English law

denies that the syndicates are trusts, or the active underwriters

trustees. Boobyer v. Holman Co., [1993] 1 Lloyd’s Rep. 96 (Q.B.

1992). Navarro dealt with an “express trust” (446 U.S. at 462);

whatever the syndicates may be, they are not express trusts. A

second problem is that the agreements between the names and

the active underwriters treat the active underwriters as agents. A

typical contract delegates authority to

appoint or employ any person firm or body corporate

to carry on or manage the underwriting or any part of

it and may delegate to or confer upon any such person

firm or body corporate all or any of the powers

authorities discretion rights and duties given to the

Agent by [the names’ agency agreement].

Trustees, by contrast, are principals, owning and managing a

defined pool of assets. And this gets to the third difference.

Trustees own the corpus; ownership is what distinguishes a trustee

from an agent. Active underwriters commit the wealth of the

syndicates’ names to fulfilment of the policy, which makes the

insurance valuable to the customer, but the active underwriters

do not own this wealth or exercise over it any dominion other

than the power to underwrite risks. The difference between

management of the names’ assets and ownership of a corpus has

a jurisdictional consequence. Navarro qualified its discussion as

one dealing with “trustees whose control over the assets held in

their names is real and substantia.” 446 U.S. at 465 (emphasis

Appendix A

added). Otherwise any unincorporated association could avoid

Strawbridge by naming an agent or attorney to act on behalf of

all members. Consider the arrangement in Northern Trust Co. v.

Bunge Corp., 899 F.2d 591 (7th Cir. 1990): Shareholders in a

closely held corporation appointed the trust department of a bank

as their agent to negotiate the sale of their interests. When a

question later arose about a warranty in the acquisition, the bank

brought suit as agent for all of the selling stockholders. We held

that the citizenship of the bank, as agent, was the citizenship of

each investor. 899 F.2d at 594-96. The bank did not own the

stock and therefore was not a trustee, we concluded; and if it

was not a trustee then it was an agent for an unincorporated

association, to which the approach of Bouligny was applicable.

English law treats the active underwriters as agents for the names

in much the way the bank was agent for the investors. If the bank

was not acting as a trustee, the active underwriters also are not

trustees.

Certain Interested Underwriters at Lloyd's v. Layne, 26 F.3d

39 (6th Cir. 1994), treats the active underwriters as agents for the

names, which the court considered to be “undisclosed principals.”

Applying the “venerable common law rule that an agent for an

undisclosed principal is personally liable on a contract” (26 F.3d

at 43), Layne concludes that the citizenship of the names is

irrelevant. This supposes that the names are not liable if they are

not sued, and that if they aren’t exposed to loss their citizenship

doesn’t count. This is problematic under American law— limited

partners can’t be sued for the partnership's acts and are not

exposed to damages beyond loss of their investments, yet their

citizenship counts. What is more, the intersection of English law

with the sixth circuit's rationale produces an unfortunate

implication. Recall that under English law the names cannot be

sued by insureds. If inability to sue them personally means that

10a

Appendix A

their interests are not affected by the litigation, it would follow

that no insured could rely on their promises or use their wealth to

support the insurance agreement. No surprise therefore that the

London Market Insurers embrace the result of Layne but not its

rationale, which would make policies written on the London market

less valuable to insureds. Yet the syndicates need not fear that

Layne’s rationale will wipe out their business, for Layne is

mistaken. The proposition that an agent for an undisclosed

principal is liable does not imply that the undisclosed principal is

not bound by the contract; the full statement of the “venerable

rule” is that both agent and principal are bound. See Restatement

(2d) of Agency §§ 186, 302. When the principal's interests are

affected by the litigation, the principal’s citizenship counts even

if the agent is the sole litigant. So we held in Northern Trust, a

case the sixth circuit did not mention.

Layne is the only appellate opinion that has discussed

syndicates’ citizenship under §1332. District courts are split.

Some analogize the active underwriters to trustees, while others

think that the syndicates should be treated as partnerships. Many

courts of appeals, including this one, see Certain Underwriters

of Lloyd's v. General Accident Insurance Co., 909 F.2d 228 (7th

Cir. 1990), have resolved litigation by or against London

syndicates under §1332, but none discusses the potential

significance of the names’ citizenship, and therefore none

expresses a holding on the subject. Pennhurst State School

Hospital v. Halderman, 465 U.S. 89, 119 & n.29 (1984);

United States v. L.A. Tucker Truck Lines, Inc., 344 U.S. 33, 37-

38 & n.¥ (1952); R.R. Donnelley Sons Co. v. FTC, 931 F.2d 430,

433 (7th Cir. 1991). See also Webster v. Fall, 266 U.S. 507, 511

(1925). For all we can tell, in cases such as General Accident

none of the names in the syndicates that underwrote the policy

had the same citizenship as an insured, so the question could not

lla

Appendix A

have arisen. Dresser Industries, Inc. v. Underwriters at Lloyd’s

of London, 106 F.3d 494 (3d Cir. 1997), on which Indiana Gas

relies, likewise does not address the subject. Dresser holds only

that jurisdiction is not spoiled by the presence of an alien on

oth sides of the case, if the parties are otherwise of diverse

citizenship. Accord, Allendale Mutual Insurance Co. vy. Bull

Data Systems, Inc., 10 F.3d 425, 427-28 (7th Cir. 1993). The

third circuit did not discuss the role of the names’ citizenship.

On that subject Layne stands alone among appellate decisions

—and we conclude that it stands incorrectly. We disagree with

Layne and hold that the underwriting syndicates must be treated

like partnerships when determining their citizenships."

Citizens of Indiana are on both sides of this case, which

therefore may not be maintained under § 1332. The judgment of

the district court is vacated, and the case is remanded with

instructions to dismiss for want of subject-matter jurisdiction.

’ Because this conclusion creates a conflict among the circuits, this opinion

was circulated before release to all judges in active service. See Circuit Rule

40(e). A majority did not favor a hearing by the full court. Circuit Judges Kanne

and Evans voted for rehearing en banc.

12a

Appendix A

EVANS, Circuit Judge, dissenting. Good lawyers — and

Mark Levy, the attorney for the Indiana Gas Company, is certainly

nothing if not a mighty good lawyer' — often spend the evening

before an appellate oral argument trying to anticipate the sort of

questions they may be asked by the judges the next morning.

This case undoubtedly got Levy thinking about esoteric things

like the fine points of hydrology and mundane things like pollution

exclusions In insurance policies.

But surprise surprise. Forty-five seconds into Mr. Levy’s

argument, a question arrived from deep in the left field corner:

“How do we know there is subject matter jurisdiction in this

case?” Today the court answers its own question: There is no

federal jurisdiction. So, despite the fact that the complaint alleged

an arguable basis for diversity jurisdiction, the answers conceded

jurisdiction, the district judge nurtured the case for three years

and the parties came here looking for answers to questions on

the merits of this complex litigation, we tell everyone they wasted

their time. The district court, we hold, didn't have jurisdiction

from the get-go, so close the hymnals because mass is over. Go

home. Case dismissed. Three years of work in the district court

1. Mr. Levy, a former Deputy Assistant Attorney General for appellate

matters in the Civil Division of the Justice Department and presently a partner at

Washington, D.C.’s Howrey & Simon, is one of the country’s premier appellate

litigators. See The National Law Journal, July 31, 1995. But by highlighting

Mr. Levy, I don’t mean to slight the other attomeys who argued this case before

our panel. Harry Lee, Stephen Roberts, and Sonia Waisman, from powerhouse

law firms (Steptoe & Johnson LLP, Washington, D.C.; Mendes & Mount, LLP,

New York, New York; and Luce, Forward, Hamilton & Scripps, LLP, San

Diego, California, respectively) all appear to be top-notch lawyers. And obviously

the district judge, William Lee (Yale University, B.A., 1959; University of Chicago

Law, J.D., 1962), a grizzled veteran of 17 years on the district court bench, is

no slouch as well.

Coo lI Estat eS arate MN

13a

us Appendix A

getting the vase to this point are washed down the drain. Because

this result is unacceptable, I dissent.

The majority correctly notes that we have “a duty to ensure

that subject-matter jurisdiction is present even if the parties

disregard the issue. . . .” Slip op. at p. 4. But having a duty and

going so far beyond its call are not the same thing.

In establishing the requirement of “complete diversity” and

finding it lacking 190 years ago in Strawbridge v. Curtiss, 7 U.S.

(3 Cranch) 267 (1806), Chief Justice Marshall did no more than

look at the complaint which showed Massachusetts plaintiffs suing

Massachusetts defendants plus someone (Curtiss) from Vermont.

Today, in finding “complete diversity” to be absent, our court

goes through a very elaborate academic exercise. First it pooh-

poohs the unchallenged allegation in the complaint that none of

the various entities (Certain Underwriters at Lloyd’s, London and

Certain London Market Insurers) are, for diversity purposes, from

Indiana. Next, it pays no heed to the fact that many federal courts,

including ours in Certain Underwriters of Lloyd’s v. General

Accident Insurance Co., 909 F.2d 228 (7th Cir. 1990) (Bauer,

J.), have resolved litigation on the merits in similar diversity cases

against London syndicates. Finally, the court goes out of its way

to distinguish Certain Interested Underwriters at Lloyd's v. Layne,

26 F.3d 39 (6th Cir. 1994) — where a jurisdictional objection

was raised and rejected — while on its way to creating a conflict

among the circuits.

I prefer to do none of these things. I would follow, at this

time, the holding of Layne and resolve this dispute on the merits.

To do otherwise makes the professionals in this case — a bevy

of top-notch lawyers and an experienced and able district judge

~— look, unfairly, as if they were slipshod in discharging their

l4a

Appendix A

responsibilities for failing to note that for over a thousand days this

case had no business being in a federal court.

A true Copy.

Teste:

Clerk of the United States Court of

Appeals for the Seventh Circuit

15a

APPENDIX B — DECISIONS OF THE UNITED STATES

DISTRICT COURT FOR THE NORTHERN DISTRICT

OF INDIANA, FORT WAYNE DIVISION IN INDIANA GAS

COMPANY, INC. et al. v. AETNA CASUALTY & SURETY

COMPANY, et al. DATED OCTOBER 2, 1996

aes hare iB wee eM selabaltel

INDIANA GAS COMPANY, INC., Richmond Gas Corporation

d/b/a Indiana Gas Company, Inc. and Terre Haute Gas

Corporation d/b/a Indiana Gas Company, Inc., Plaintiffs,

Vv.

AETNA CASUALTY & SURETY COMPANY,

Connie Lee Insurance Company, Continental Casualty Company,

Continental Insurance Company, Greenwich Insurance

Company, Home Insurance Company, Certain Underwriters at

Lloyd’s, London and Certain London Market Insurance

Companies, North River Insurance Company, Ranger Insurance

Company, St. Paul Fire & Marine Insurance Company, St. Paul

Surplus Lines Insurance Company, and the Travelers C ompany,

Defendants.

No. 1:95-CV-101.

United States District Court,

N.D. Indiana,

Fort Wayne Division.

Oct. 2, 1996.

* * *

16a

Appendix B

MEMORANDUM OF DECISION AND ORDER

WILLIAM C. LEE, District Judge.

This matter is before the Court on the “Motion to Dismiss

Plaintiff's Claims for Declaratory Judgment as to the Richmond

Site for Lack of Jurisdiction” filed July 10, 1996, by defendants St.

Paul Fire & Marine Insurance Company, St. Paul Surplus Lines

Insurance Company, Ranger Insurance Company, those London

Market insurers severally subscribing to policies of excess

insurance in favor or Richmond Gas Corporation, and Home

Insurance Company. The thrust of that motion is that there is no

case or controversy with respect to claims relating to the Richmond

site. That same date, defendants Aetna Casualty & Surety

Company, the London Market Insurers and the Home Insurance

Company joined in that motion to dismiss contending that the same

arguments applied with respect to the manufactured gas plants at

Bedford, Greencastle, Huntington, Marion, Seymour and Terre

Haute. Plaintiffs responded to the motion to dismiss for lack of

jurisdiction on July 10, 1996 to which a reply was filed on August

9, 1996. For the following reasons, the motion to dismiss will be

granted.

Factual Background

For present purposes, the relevant facts, construed in plaintiffs’

favor, may be summarized briefly as follows: This litigation has as

its origin a federal lawsuit that was filed by Indiana Cities Water

Corporation. In that case, an amended complaint was filed to add

Indiana Gas and PSI Energy, Inc. The amended complaint alleged

contamination and the threat of contamination in the shallow and

deep aquifers at the point of raw water collection at a site in

Shelbyville, Indiana. Indiana Gas was then joined as a party by the

> . 4

pecs ead aad Mar a AO PR Bh

17a

Appendix B

Indiana Department of Environmental Management (IDEM) in an

enforcement action relating to the Shelbyville site. Purportedly

Indiana Gas timely notified its insurers (some of the defendant

insurers in this action) but those insurers failed and refused to

indemnify Indiana Gas.

A separate enforcement action was instituted against Indiana

Gas by IDEM, this time relating to groundwater contamination at

a former manufactured gas plant (MPG) at Lafayette. Indiana

Gas defended the enforcement action and conducted remedial

activities in compliance with orders issued by IDEM. Once again,

after notifying the insurers, the insurers refused to defend the action

or indemnify Indiana Gas in accordance with their policies.

Subsequent to those actions, Indiana Gas conducted a

preliminary assessment/site investigation at former MGP sites in

Marion, Bedford, Greencastle, Huntington, Seymour, Terre Haute

and Richmond. Those investigations were completed in March of

1995 revealing contamination at each of the seven sites.' At least

with respect to the Richmond, Terre Haute, Bedford and

Greencastle sites, the level of contamination exceeds regulatory

standards which could require further response or remediation. In

November of 1992, Indiana Gas notified St. Paul, Aetna, Home

and the London Market Insurers of the potential loss at the Marion,

Bedford, Greencastle, Huntington, Seymour, Terre Haute and

Richmond former MGP sites. In that correspondence, Indiana Gas

requested that the defendants agree to reimburse Indiana Gas for

all costs incurred in connection with the investigation of the MGP

sites together with the cost of any remediation of any potential

property damage pertaining to the sites. The insurers refused to

acknowledge their coverage for these potential costs.

1. It would appear that defendants’ own expert agreed that those

sites were in fact contaminated.

18a

Appendix B

Plaintiffs filed suit in this Court on April 14, 1995. Count I

alleges that “[d]efendants have failed to honor their contractual

obligation: to (1) defend Indiana Gas; (2) pay in full the defense

costs and expenses of Indiana Gas; and/or (3) indemnify Indiana

Gas for damages and/or expenses and/or its losses and obligations

with respect to the claims alleged. . .” (complaint § 95 & 98) in

the Shelbyville and Lafayette actions.” In Count 2, plaintiffs seek

a declaratory judgment that the insurers have failed in their duty to

defend and indemnify with respect to not only the Shelbyville and

Lafayette sites but also the Bedford, Greencastle, Richmond,

Huntington, Marion, Seymour, and Terre Haute sites.

At the time of the filing of the complaint, no third party

(including the IDEM or the Environmental Protection Agency

(EPA)) had made any claim, issued any order, or filed any action

against Indiana Gas regarding the Bedford, Greencastle,

Huntington, Marion, Seymour, Terre Haute or Richmond MGPs.

Nor had any claim or administrative orders been threatened

regarding any of these seven sites.

Application of Law

As indicated at the outset, St. Paul and others have filed a

motion to dismiss the declaratory judgment claim as it relates to

the Richmond site because this Court lacks subject matter

jurisdiction. In its joinder of that motion, Aetna and others contend

the same with respect to the Bedford, Greencastle, Huntington,

Marion, Seymour and Terre Haute sites. Because this court is of

the view that there is no case or controversy with respect to those

sites, the motion to dismiss will be granted.

2. Indiana Gas alleges in the complaint that it has spent in excess of

three million dollars relating to the remedial activities at the Lafayette

site and in excess of two million dollars on the Shelbyville site.

19a

Appendix B

“ “The judicial power does not extend to abstract questions.’ ”

Public Serv. Comm’n v. Wycoff Co., 344 U.S. 237, 242, 73 S.Ct.

236, 239, 97 L.Ed. 291 (1952) (quoting Ashwander v. Tennessee

Valley Auth., 297 U.S. 288, 324, 56 S.Ct. 466, 472, 80 L.Ed. 688

(1936)). Rather, federal courts can only resolve actual “cases”

and “controversies.” U.S. Const. art. III, § 2. The existence of a

case or controversy is a prerequisite to all federal actions, including

those for injunctive and declaratory relief. Skelly Oil Co. v. Phillips

Petroleum, 339 U.S. 667, 671-72, 70 S.Ct. 876, 878-79, 94 L.Ed.

1194 (1950). Consonant with Article III, the Declaratory Judgment

Act provides that “[i]n a case of actual controversy within its

jurisdiction . . . any Court in the United States, upon the filing of

an appropriate pleading may declare the rights and other legal

relations of any interested party seeking such a declaration.” 28

U.S.C. § 2201(a).

“[A] justiciable controversy is ... distinguished from a

difference or dispute of a hypothetical or abstract character; [or]

from one that is academic or moot.” Aetna Life Ins. Co. v. Haworth,

300 U.S. 227, 240-41, 57 S.Ct. 461, 464, 81 L.Ed. 617 (1937).

“The controversy must be definite and concrete, touching the legal

relations of parties having adverse legal interests.” Id. To determine

whether there is a “controversy,” the court must “look to the state

of affairs as of the filing of the complaint; a justiciable controversy

must have existed at that time.” International Harvester v. Deere

& Co., 623 F.2d 1207, 1210 (7th Cir. 1980).

“At first blush, the existence vel non of an actual controversy

would not appear to lend itself to discretionary disposition. Either

there is an actual controversy or there is not.” Certain Underwriters

at Lloyd’s v. St. Joe Minerals Corp., 90 F.3d 671, 675 (2nd

Cir.1996). “ ‘The difference between an abstract question and a

‘controversy’ contemplated by the Declaratory Judgment Act is

20a

Appendix B

necessarily one of degree, and it would be difficult, if it would be

possible, to fashion a precise test for determining in every case

whether there is such a controversy.’ ” Id. (quoting, Maryland

Casualty Co. v. Pacific Coal & Oil Co., 312 U.S. 270, 273, 61

S.Ct. 510, 512, 85 L.Ed. 826 (1941)).

The notion that the difference between an abstract question

and a controversy is one of degree, and that it is not possible to

fashion a precise test distinguishing between the two, can be seen

in cases such as this where an insured seeks a declaratory judgment

against its insurer relating to remedial actions or clean up costs at

a contaminated site. In the present matter, defendants, relying

primarily upon the United States Court of Appeals for the Eleventh

Circuit’s decision in Atlanta Gas & Light v. Aetna, 68 F.3d 409

(11th Cir.1995) and the Eighth Circuit’s decision in Gopher Oil

Company v. Bunker, 84 F.3d 1047 (8th Cir. 1996) contend that this

case is not justiciable. The plaintiffs, on the other hand, place heavy

reliance on the United States Court of Appeals for the Third

Circuit’s decision in Riehl v. Travelers Insurance Co., 772 F.2d 19

(3rd 1985) and the Eighth Circuit’s opinion in Aetna Casualty and

Surety Co. v. General Dynamics Corp., 968 F.2d 707 (8th Cir.1992)

for the opposite proposition. Those decisions, which appear to arrive

at seemingly divergent results, however, are reconcilable when

the facts presented are closely examined. Moreover, when the

facts presented here are compared with those in the above-cited

decisions, it is clear that this case is more akin to Atlanta Gas and

Gopher Oil than it is to Riehl and General Dynamics.

In Atlanta Gas, the insured brought an action for declaratory

judgment asking the court to determine that the insurer had a duty

to defend and indemnify it for cleanup costs at its manufactured

gas plants. On appeal, the United States Court of Appeals for the

RRA ite Ciena islan. ch Ae

21a

Appendix B

Eleventh Circuit determined, sua sponte, that there was no justiciable

controversy writing:

The district court made no determination that a

justiciable controversy existed when the complaint was

filed; the record would not support such a finding. Not

only had the insurers not yet received the notice, no

one knew exactly what had to be cleaned up, or how

much the cleanup would cost. While it is not necessary

to know each of these factors with certainty in order

to seek declaratory relief, when AGL filed its

complaint, it was not clear that state and federal

environmental agencies would ever require cleanups

at any of AGL’s former MPG sites. The record

demonstrates that the regulatory climate was evolving

when AGL filed its suit: what actions would be required

by regulators was uncertain. At the time the complaint

was filed, GEPD had concluded that AGL’s Georgia

site posed no threat to public health, and FDER had

recommended only ‘additional site screening’ at the

Sanford, Florida site. No then-owner of an MGP site

had called upon AGL to reimburse them for cleanup

costs or to clean up wastes itself. No lawsuits had

been filed against AGL, either by owners of former

MGP sites or by adjacent property owners. With so

many material facts dependent upon future

contingencies, it would be impossible to resolve all the

issues relative to the timeliness of notice ina way that

would do justice to the parties.

Id. 68 F.3d at 415. Similarly, in Gopher Oil, the United States Court

of Appeals for the Eighth Circuit upheld the dismissal of claims

seeking declaratory judgment of potential liabilities of two parties

with respect to environmental cleanup costs at a site since there

22a

Appendix B

were “[n]Jo facts [to] indicate an immediate threat of either MERLA

[Minnesota Environmental Response & Liability Act] or tort

liability.” Id. 84 F.3d at 1051. Thus, in both Atlanta Gas and Gopher

Oil, there was no controversy within the meaning of Article III.

Conversely, a justiciable controversy relating to the costs of

cleaning up contaminated sites was found to exist in both Riehl

and General Dynamics. In Riehl, an insured brought an action

seeking a declaration that certain insurance policies covered

expenses of cleaning up a toxic dump site. Although the insured

had received notice from the EPA that he was a responsible party

under the Comprehensive Environmental Response Compensation

Liability Act (CERCLA) and as such would be assessed the

expense of cleaning up the site, as of the time of filing of suit no

legal proceedings had been instituted against him by either the

Pennsylvania Department of Environmental Resources or the EPA.

In holding that the matter was justiciable, the United States Court

of Appeals for the Third Circuit wrote:

In order for a case to be justiciable, the salient facts

must be real, not hypothetical. Our review of

justiciability is plenary. The problem of justiciability is

especially troublesome in a declaratory judgment action,

where the court may be asked to decide a case based

on events that have not yet and may not occur....

Where, however, the essential facts establishing a right

to relief, including declaratory relief, have already

occurred, the case is justiciable. . . .

From the summary judgment record before us, it

appears that all relevant events have already occurred,

and the case thus appears justiciable. The dumping of

the wastes and the leaching off the property of these |

chemicals have apparently already transpired. . . .

a eaeemeaatitiiinimiaiaaiiaiiaiiaaiiaaiidiiiaiaalal

23a

Appendix B

The only events which have yet to occur are the

expenditures of the funds by Riehl for clean-up and

the entry of judgment imposing liability on Riehl for the

toxic waste damage. However, neither immediate

liability for damages, nor a liquidation to the extent of

an insurer’s indemnification obligation is necessary in

this Circuit to establish a justiciable controversy. In

ACand$S v. Aetna Casualty & Surety Co., 666 F.2d

819 (3rd Cir.1981), this court found justiciable the

question of liability insurance coverage for exposure

to asbestos even though not all of the carriers against

whom declaratory relief was sought were as yet

implicated by an actual suit against the insured.

Since all relevant events appear from the record to

have occurred, we hold that this case is ripe for

adjudication.

Id. 772 F.2d at 22-23 (footnote omitted). Similarly, in General

Dynamics Corp., an insurer brought an action against its insured

seeking declaratory relief as to its obligation to defend and

indemnify the insured in connection with claims involving

environmental pollution. At issue were sixteen sites, however, the

district court held that with respect to four of those sites the case

Was not ripe since no suit had been filed nor any settlement achieved

at the four sites. In reversing that aspect of the district court’s

decision, the United States Court of Appeals for the Eighth Circuit

wrote:

Aetna also contends that the district court erred by

holding that because no suits had yet been filed nor

any settlements reached with respect to four of the

sixteen sites, Aetna’s declaratory judgment action was

not ripe for adjudication as to those sites.

24a

Appendix B

Aetna argues that since General Dynamics had made

a clear demand for payment of defense and indemnity

costs with respect to each of the four sites and because

Aetna disputed those demands, there is a live justiciable

controversy between the parties sufficient to invoke

the jurisdiction of the district court. ... General

Dynamics does not address this issue on appeal;

apparently it concedes that the district court’s decision

was in error. We agree with Aetna that a live justiciable

controversy exists between the parties and hold that

Aetna’s suit is ripe with respect to the four sites.

Id., 968 F.2d at 711 (citation omitted).

In the present matter, this case is similar to both Atlanta Gas*

and Gopher Oil in that at the time the suit was filed no third party

had made any claim or filed any litigation regarding the sites in

issue; neither the state environmental agency nor the EPA had

issued any notice or order or threatened any claim regarding those

sites; and it is not clear whether either the state or federal

government would ever require a clean-up since no notices, orders,

claims, litigation or directives have been issued regarding the sites.

Those factual similarities between Atlanta Gas and Gopher Oil

also make this case dissimilar from the decisions in Riehl and

General Dynamics because in Riehl plaintiff had “received notice

that the EPA would commence clean-up of the site, and that all

3. Indeed save for the fact that the plaintiff in Atlanta Gas failed to

give notice to its insurer until at the time of filing suit, this case is virtually

identical to Atlanta Gas. While this failure to give notice was a factor in

the court’s determination that the case was not justiciable, it was but one

factor. Most tellingly, however, was the fact that “it was not clear that

state or federal environmental agencies would ever require clean ups at

any of AGC’s former MGP sites.” 68 F.3d at 415.

25a

Appendix B

expenses of clean-up would be assessed against Riehl as a

‘responsible party’ under the comprehensive Environmental

Response Compensation Liability Act of 1980 (‘CERCLA’), 42

U.S.C. § 9607(a),"* 772 F.2d at 21, and in General Dynamics, of

the sixteen sites at issue, the insured had been “served with lawsuits

concerning environmental contamination at seven sites and with

letters from federal and state environmental protection agencies

or from private parties demanding that it clean up environmental

wastes at nine other sites.” 968 F.2d at 709. Here, no such lawsuits

have been filed nor have demands been made that the Richmond,

Bedford, Greencastle, Huntington, Marion, Seymour and Terre

Haute sites be clean up or remediated. As such, there is no

controversy with respect to those sites and accordingly no justiciable

issue is presented to the Court.

In arriving at the foregoing conclusion, this Court is not

unmindful of the Seventh Circuit’s decision in Bankers Trust Co.

v. Old Republic Ins. Co., 959 F.2d 677, 681 (7th Cir. 1992) and its

language to the effect that “Article III requires only a probabilistic

injury” — which present plaintiff claims to be “dispositive.” (Ans.Br.

p. 10). Rather than being “dispositive,” this Court is of the view

that that case is distinguishable.

There, the insured had in fact been sued by a third party before

4. On November 20, 1995, Timothy R. Johnson of the IDEM sent a

letter to Indiana Gas which indicates that IDEM is “assessing” all former

manufactured gas plants in Indiana. That letter, however, does not create

a case or controversy for two reasons. First, it does not give any orders

or directives to Indiana Gas to remediate or further investi gate its former

manufactured gas plants. Rather, it merely requests general information

about former manufactured gas plant properties. Second, the letter has

no bearing on this case since it was sent over seven months after this

lawsuit was filed and, as indicated previously, justiciability is evaluated

based on the state of affairs at the time of the filing of the complaint.

26a

Appendix B

the declaratory judgment action regarding coverage was brought

and the only remaining questions were whether the insured would

win or lose the suit and the amount of the judgment. While

indicating that cases such as Wooten v. Loshbough, 951 F.2d

768, 769 (7th Cir.1991) had spoken in terms of “probabilistic

injury,” the court in Bankers Trust indicated that “this doesn’t

mean that any probability, however slight, is enough to permit a

suit to be maintained 1n federal court. We are dealing with matters

of degree.” 959 F.2d at 681.° Since the insured’s liability (or the

possibility that judgment would be less than the coverage amount)

was a contingency which did not take the case out of Article III's

grant of jurisdiction, the mere possibility that the declaratory relief

requested may be rendered moot by the proceedings below was

simply a factor relevant to the district court’s exercise of equitable

discretion to grant or withhold declaratory relief.

Here, unlike Bankers Trust, but like Atlanta Gas, there has

been no suit filed against the plaintiffs and no indication or notice

that that will occur with respect to the sites in question. At present,

the controversy alleged in plaintiffs’ complaint for declaratory

judgment relating to those sites is nothing more than hypothetical:

if a government agency issues an order or notice; or if an agency

requires plaintiffs to take some action with regard to the sites; or if

a third party makes a claim; or if a third party files litigation against

plaintiffs based on contaminants at those sites; or if plaintiffs incur

costs to clean up the sites, there may be coverage for those currently

non-existent claims, orders, directives or costs. Such are now mere

possibilities, not probabilities, and accordingly the motion to dismiss

must be granted.

5. In its opimion, the court pointed out that many cases in the Seventh Circuit

have been read as indicating “that a suit to determine an insurer's obligation to

indemnify its insured is premature until the insured has been determined to be liable

to somebody,” 959 F.2d at 680 (collecting cases), and that “[o]ther circuits take a

more liberal view.” Id. The Court went on to note, however, that “our cases state a

general rule rather than an absolute one.” Id.

27a

Appendix B

Conclusion

On the basis of the foregoing, the “Motion to Dismiss Plaintiff's

Claims for Declaratory Judgment as to the Richmond Site for Lack

of Jurisdiction” filed July 10, 1996, by defendants St. Paul Fire &

Marine Insurance Company, St. Paul Surplus Lines Insurance

Company, Ranger Insurance Company, those London Market

insurers severally subscribing to policies of excess insurance in

favor or Richmond Gas Corporation, and Home Insurance Company

is GRANTED. Likewise, plaintiffs’ request for declaratory

judgments with respect to the manufactured gas plants at Bedford,

Greencastle, Huntington, Marion, Seymour and Terre Haute are

DISMISSED. Said dismissals are WITHOUT PREJUDICE.

SO ORDERED.

28a

Appendix B

INDIANA GAS COMPANY, INC., Richmond Gas Corporation

d/b/a Indiana Gas Company, Inc. and Terre Haute Gas

Corporation d/b/a Indiana Gas Company, Inc.,

Plaintiffs,

AETNA CASUALTY & SURETY COMPANY,

Connie Lee Insurance Company, Continental Casualty Company,

Continental Insurance Company, Greenwich Insurance

Company, Home Insurance Company, Certain Underwriters

at Lloyd’s, London and Certain London Market Insurance

Companies, North River Insurance Company, Ranger Insurance

Company, St. Paul Fire & Marine Insurance Company, St. Paul

Surplus Lines Insurance Company and the

Travelers Company, Defendauts.

No. 1:95-CV-101.

United States District Court,

N.D. Indiana,

Fort Wayne Division.

Oct. 2, 1996.

+ * aa

MEMORANDUM OF DECISION AND ORDER

WILLIAM C. LEE, District Judge.

This matter is before the Court on defendant Ranger Insurance

Company’s July 10, 1996, “Motion for Partial Summary Judgment

29a

Appendix B

Concerning ‘Property Damage During the Policy Period,’ ” a

motion in which other defendants have joined. Plaintiffs responded

to that motion on July 31, 1996, to which Ranger Insurance replied

on August 9, 1996. For the following reasons, the motion for partial

summary judgment will be granted.

Factual Background

Ranger issued Comprehensive General Liability policies to

Richmond Gas Corporation for the period from 1975 to 1987 and

also issued an Excess Liability policy and Commercial Umbrella

Liability for the period 1975-1976. The Ranger policies, and those

of the defendants who have joined in the motion, all contained

language identical or substantially similar to the effect that the

insurers agreed “to pay on behalf of the insured all sums which the

insured shall become legally obligated to pay as damages because

of. . . property damage to which this insurance applies caused by

an occurrence.” “Occurrence” is then defined as “an accident,

including continuous or repeated exposure to conditions, which

results in property damage neither expected nor intended from the

standpoint of the insured.” In turn, “property damage” is defined

as “physical injury to or destruction of tangible property which

occurs during ti.e policy period.”

Indiana Gas has identified three potential sources of

contamination associated with the manufactured gas plants (MGP):

(1) land disposal of MGP waters; (2) manufactured gas plant

operations; and (3) decommissioning activities. There was

contamination at each of the sites in question from the time that

the contaminants first entered the groundwater and plaintiffs

maintain that that contamination continues to the present day.

The specific sources of groundwater contamination at each

site have been identified by Indiana Gas’s hydrogeology expert,

30a

Appendix B

Dr. Thomas Prickett. Dr. Prickett conducted a hyrodgeologic study

of groundwater flow and contaminant migration. According to him,

the study provided the “most certain indication as to when and

how [MGP] chemicals impacted the groundwater and migrated

off the MGP sites.”'

With respect to each of the sites which are at issue in the

presently pending motion for partial summary judgment, the

following is undisputed:

(1) The Seymour Site. An MGP was in operation from

1886 to 1931 and the plant was substantially

decommissioned prior to 1945. Dr. Prickett concluded

that the groundwater at the site was contaminated by

chemicals from the probable site sources by no later

than 1954, and that contamination was off-site by no

later than 1954.

(2) The Bedford Site. The MGP was in operation from

1900 to 1940 and substantially decommissioned prior

to 1945. Dr. Prickett concluded that the groundwater

at the site was contaminated by chemicals from the

probable site by no later than 1954 and that

contamination was off-site by no later than 1954.

(3) The Huntington Site. The MGP was in operation

from 1883 to 1926 and substantially decommissioned

by 1945. Dr. Prickett identifies the sole source of

groundwater contamination at the site as the

“dismantling of [a] holder and filling the base with MGP

materials about 1937.” Contaminants had entered the

groundwater and moved off-site in 1937.

|. To do this, Dr. Prickett focused on “the most widespread, fastest

moving and reoccurring chemicals at the site.”

5c i neat

3la

Appendix B

(4) The Lafayette Site. An MGP was in operation

from 1852 to 1937 and the plant substantially

decommissioned by 1945. Releases of hazardous

substances at the site resulted in off-site damage to

soil and/or groundwater no later than 1952.

(5) The Shelbyville Site. An MGP was in operation

from 1925 to 1946. Dr. Prickett concluded that the

groundwater at the site was contaminated by chemicals

from the probable site sources by no later than 1925

and that contaminants had moved off-site by no later

than 1940.

(6) The Richmond Site. An MGP was in operation

from 1855 to 1941. Dr. Prickett concluded that the

groundwater at the site was contaminated by chemicals

from the probable site sources by no later than 1914.

and that contaminants had moved off-site by no later

than 1919. el

(7) The Terre Haute Site. The MGP was in operation

from 1886 until the 1930s. Dr. Prickett concluded that

the groundwater at the site was contaminated by

chemicals from the probable site sources by no later

than 1899, and that contaminants had moved off-site

by no later than 1924.

Thus with respect to all of the foregoing sites, the groundwater

had become contaminated and the contaminants had begun to move

off-site by no later than the mid-1950s. There is, however, evidence

to suggest that the groundwater from the former MGPs is stil]

running into streams and rivers located near at least six of the

sites.

32a

Appendix B

Application of Law

As indicated at the outset, this matter is presently before the

Court on Ranger’s motion for partial summary judgment concerning

the issue of whether any property damage occurred during the

relevant policy periods, a motion in which several of the other

defendants have joined. After a review of the summary judgment

standards, the parties arguments will be addressed.

A. Summary Judgment Standards

Summary judgment is proper “if the pleadings, depositions,

answers to interrogatories, and admissions on file, together with

the affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment as

a matter of law.” Fed.R.Civ.P. 56(c). However, Rule 56(c) is not a

requirement that the moving party negate his opponent’s claim.

Fitzpatrick v. Catholic Bishop of Chicago, 916 F.2d 1254, 1256

(7th Cir. 1990). Rule 56(c) mandates the entry of summary judgment,

after adequate time for discovery, against a party “who fails to

make a showing sufficient to establish the existence of an element

essential to that party’s case, and in which that party will bear the

burden of proof at trial.” Celotex Corp. v. Catrett, 477 U.S. 317,

322, 106 S.Ct. 2548, 2552-53, 91 L.Ed.2d 265 (1986). The standard

for granting summary judgment mirrors the directed verdict

standard under Rule 50(a), which requires the court to grant a

directed verdict where there can be but one reasonable conclusion.

Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct.

2505, 2511, 91 L.Ed.2d 202 (1986). A scintilla of evidence in support

of the non-moving party’s position is not sufficient to successfully

oppose summary judgment; “there must be evidence on which the

jury could reasonably find for the plaintiff.” Id. at 252, 106 S.Ct. at

2512; Inre Matter of Wildman, 859 F.2d 553, 557 (7th Cir.1988);

ani

As ile

omar

33a

Appendix B

Klein v. Ryan, 847 F.2d 368, 374 (7th Cir.1988); Valentine v. Joliet

Township High School District No. 204, 802 F.2d 981, 986 (7th

Cir. 1986). No genuine issue for trial exists “where the record as a

whole could not lead a rational trier of fact to find for the nonmoving

party.” Juarez v. Ameritech Mobile Communications, Inc., 957 F.2d

317, 322 (7th Cir.1992) (quoting Matsushita Electric Industrial Co.,

Ltd. v. Zenith Radio Corp., 475 U.S. 574, 586, 106 S.Ct. 1348,

1356, 89 L.Ed.2d 538 (1986)).

Initially, Rule 56 requires the moving party to inform the court

of the basis for the motion, and to identify those portions of the

“pleadings, depositions, answers to interrogatories, and admission

on file, together with the affidavits, if any, which demonstrate the

absence of a genuine issue of material fact.” C elotex, 477 U.S. at

323, 106 S.Ct. at 2553. The non-moving party may oppose the

motion with any of the evidentiary materials listed in Rule 56( c),

but reliance on the pleadings alone is not sufficient to withstand

summary judgment. Goka v. Bobbitt, 862 F.2d 646, 649 (7th

Cir.1988); Guenin v. Sendra Corp., 700 F.Supp. 973, 974

(N.D.Ind.1988); Posey v. Skyline Corp., 702 F.2d 102, 105 (7th

Cir.), cert. denied, 464 U.S. 960, 104 S.Ct. 392, 78 L.Ed.2d 336

(1983). nie

So that the district court may readily determine whether there

are genuine issues of material fact, under Local Rule 56.1, the

moving party is obligated to file with the court a “Statement of

Material Facts” supported by appropriate citation to the record to

which the moving party contends there is no genuine issue. In

addition, the non-movant is obligated to file with the court a

“Statement of Genuine Issues” supported by appropriate citation

to the record all material facts to which the non-movant contends

there are exists a genuine issue necessary to be litigated. See

34a

Appendix B

Waldridge v. American Hoechst Corp. et al., 24 F.3d 918 (7th

Cir.1994). In ruling on a summary judgment motion the court accepts

as true the non-moving party’s evidence, draws all legitimate

inferences in favor of the non-moving party, and does not weigh

the evidence or the credibility of witnesses. Anderson, 477 U.S. at

249-51, 106 S.Ct. at 2511. However, “[i]t is a gratuitous cruelty to

parties and their witnesses to put them through the emotional ordeal

of a trial when the outcome is foreordained,” and in such cases

summary judgment is appropriate. Mason v. Continental Illinois

Nat’l Bank, 704 F.2d 361, 367 (7th Cir. 1983).

Irrelevant or unnecessary facts do not preclude summary

judgment even when they are in dispute because the issue of fact

must be genuine. Fed.R.Civ.P. 56(c), (e). To establish a genuine

issue of fact, the non-moving party “must do more than simply

show that there is some metaphysical doubt as to the material

facts.” Matsushita, 475 U.S. at 586, 106 S.Ct. at 1356; First National

Bank of Cicero v. Lewco Securities Corp., 860 F.2d 1407, 1411

(7th Cir.1988). The non-moving party must come forward with

specific facts showing that there is a genuine issue for trial. Id. A

summary judgment determination is essentially an inquiry as to

“whether the evidence presents a sufficient disagreement to require

submission to a jury or whether it is so one-sided that one party

must prevail as a matter of law.” Anderson, 477 U.S. at 251-52,

106 S.Ct. at 2512.

B. Property Damage During the Policy Period

“Under Indiana law, the interpretation of an insurance policy

presents a question of law to be decided by the court.” Cincinnati

Ins. v. Flanders Elec. Motor Service, 40 F.3d 146, 151 (7th Cir.1994)

(citing Tate v. Secura Ins., 587 N.E.2d 665, 668 (Ind. 1992). “The

35a

~ Sn 1 aie a

Appendix B

insured has the initial burden of proving coverage under an insurance

policy.” Flanders at 151 (citing Southbend Escan Corp. v. Federal

Ins. Co., 647 F.Supp. 962, 966 (N.D.Ind. 1986)). Here, there is no

dispute that plaintiffs’ right to coverage under the insurance

contracts is only “triggered” if there was property damage during

an insurer’s policy period.

“Trigger of coverage” has been defined as follows:

“ “[T] rigger of coverage’ has been used by insureds

and insurer alike to denote the circumstances that

activate the insurer’s defense and indemnity obligations

under the policy. The term ‘trigger of coverage’ should

not be misunderstood as a doctrine to be automatically

invoked by the court to conclusively establish coverage

in certain categories of cases, or under certain types

of policies. The word ‘trigger’ is not found in the CGL

policies themselves. . . . Instead, ‘trigger of coverage’

is a term of convenience used to describe that which,

under the specific terms of an insurance policy, must

happen in the policy period in order for the potential of

coverage to arise. The issue is largely one of timing —

what must take place within the policy’s effective dates

for the potential of coverage to be ‘triggered.’ ”

Montrose Chem. Corp. v. Admiral Ins. Co., 10 Cal.4th 645, 42

Cal.Rptr.2d 324, 327 n. 2, 913 P.2d 878, 881 n. 2 (1995). Four

principal theories regarding trigger of coverage have been

recognized:

If coverage is triggered at the time that personal injury

or property damage becomes known to the victim or

36a

Appendix B

property owner, the approach is identified as the

‘manifestation theory.’ If coverage is triggered when

real personal injury or actual property damage first

occurs, the approach is called the injury in fact theory.

If coverage is triggered when the first exposure to

injury- causing conditions occur then the court is said

to have chosen the ‘exposure theory.’ Finally, if

coverage is triggered in a manner such that insurance

policies in effect during different time periods all impose

a duty to indemnify, then the approach is labeled a

‘continuous’ or ‘multiple’ trigger theory.

Dow Chemical Co. v. Associated Indemnity Corp., 724 F.Supp.

474, 478 (E.D.Mich.1989) (citations omitted).*

Given that there are at least four approaches to determine

when coverage is “triggered,” courts have taken different views

as to when coverage attaches in the context of environmental

contamination cases. For example, just last year, in Montrose, supra,

the California Supreme Court determined that the proper approach

is the continuous injury trigger theory. Montrose, 42 Cal.Rptr.2d at

pp. 348-50, 913 P.2d at pp. 902-04; see also Chemical Leaman

Tank Lines, Inc. v. Aetna Casualty & Surety Co., 89 F.3d 976,

994-95 (3rd Cir. 1996). Conversely, and also last year, the Minnesota

Supreme Court in SCSC Corp. v. Allied Mutual Insurance Co.,

536 N.W.2d 305, 318 (Minn.1995), employed the actual injury

theory in determining how to allocate damages resulting from a

spill which lead to continual leaching. See also, Armotek Industries

v. Employers Ins. of Wausau, 952 F.2d 756 (3rd Cir.1991).

2. The “continuous”’ or “multiple” trigger theory has also been

referred to as the “triple trigger theory” because it expresses the notion

that the injury occurs during each of three phases of environmental

contamination — exposure, exposure in residence and manifestation.

37a

Appendix B

In the present matter Indiana Gas, not surprisingly, argues

that the “multiple trigger” theory should apply here so that it can

seek coverage under policies which became effective long after

the manufactured gas plants had been decommissioned. In support

of that position, Indiana Gas points to Eli Lilly & Co. v. Hore Ins.

Co., 482 N.E.2d 467 (Ind.1985) as the controlling Indiana law.

In this Court’s view, Eli Lilly, a case involving DES, is not

dispositive in this environmental case. In Dana Corporation v.

Hartford Accident & Indemnity Co. et al., No. 49DO1-9301-CP-

0026 (Marion Super. Sept. 10, 1996), the Marion Superior Court

cogently indicated why Eli Lilly can be limited to its facts:

“[T]he Indiana cases addressing the trigger issue does

10t require the Court to adopt a continuous trigger in

this case. Eli Lilly & Co. v. Home Ins. Co., 482 N.E.2d

467 (Ind.1985), the principal authority relied on by

[plaintiff], adopted a continuous trigger in the context

of progressive, DES-related diseases. That case is

distinguishable, however. The Court in Eli Lilly found

that the relevant policy language was ambiguous as it

relates to DES claims — it was not clear whether the

initial in utero exposure to DES (which must have

caused some injury, since the exposure was not

repeated, and allegedly caused numerous diseases 20

years later) was the relevant injury for coverage

purposes, or whether the subsequent manifestation of

3. The decision in Dana was brought to this Court’s attention as an

attachment to a letter for counsel from London Market Insurers dated

September 16, 1996. Indiana Gas, ina letter to this Court dated September

19, 1996, addressed the issues raised in the Dana decision. Both letters

have been made a part of the record in this cause.

38a

Appendix B

disease was the relevant injury. In the environmental

property damage context, however, there is no such

ambiguity — it is not a question of which injury counts,

but of when injury results. The Court in Eli Lilly did

not suggest that coverage was first triggered when a

doctor prescribed DES, or when a mother purchased

the drug. Instead, the trigger period began at the date

of the earliest actual injury.”

Id. at pp. 351-52, 913 P.2dat pp. 905-06 (italics in original); see

also Armotek supra at 763 (discussing the “unique character” of

the problem created by policy language in the context of diseases

with long latency periods as opposed to chemical contamination

cases). This Court agrees with the foregoing language in Dana.

Further support for this Court’s conclusion that Eli Lilly is not

dispositive in this action can be found in the Indiana Court of

Appeals post- Eli Lilly decision of Great Lakes Chemical Corp. v.

International Surplus Lines Ins. Co., 638 N.E.2d 847

(Ind.App.1994). There, the court addressed the trigger issue in

the context of a case involving the pesticide EDB. The court in

Great Lakes indicated that it agreed with the “general rule” that

“the time of the occurrence of an accident within the meaning of

an indemnity policy is not the time the wrongful act was committed

but the time when the complaining party was actually damaged.”

Id. at 854. Thus, on the facts before it, the court wrote that “the

general rule simply holds that the time when the EDB pesticides

were manufactured is not the time of the occurrence which triggers

coverage, but the trigger for coverage is the time when the

complaining party was damaged. Here, the City was damaged

when the EDB pesticides were applied to the soil and contaminated

the groundwater.” Id.

39a

Appendix B

Likewise here, the damage occurred when the property was

contaminated, an event which occurred long before any of the

relevant policies were issued. Indiana Gas’s own expert, Dr.

Prickett, admitted that the groundwater underlying each of the seven

sites was contaminated and had contaminated third party property

before the inception of the policies. No pollutants which could

have caused third party property damage were ever discharged

at the sites during any policy period because there were no MGP

operations during those periods (the plants had been

decommissioned) and Dr. Prickett has indicated that the sources

of contamination were in existence and had already contaminated

the groundwater and third party property before any policy period.

Thus, under Great Lakes, present defendants’ policies can not be

triggered because the third party damage occurred before any

policy period.

In reaching the foregoing conclusion that there was no property

damage which occurred during the policy period as required by

the policies, this Court is not unmindful of Indiana Gas’s argument

to the effect that there is evidence to Suggest that groundwater

from the former manufactured gas plants is running into bodies of

water which surround the sites. This, however, does not salvage

their claim.

In Inland Waters Pollution Control, Inc. v. National Union Fire

Insurance Co., 997 F.2d 172 (6th Cir.1991),* the United States

Court of Appeals for the Sixth Circuit was presented with, and

rejected, a similar argument. There, drums containing liquid wastes

were crushed during the first two months of 198] allowing the

wastes to leak into the soil. An examination six years later by the

4. This decision was originally unpublished but was subsequently

published as an appendix to Inland Waters Pollution Control Inc. vy.

National Union Fire Ins. Co., 997 F.2d 172 (6th Cir.] 993).

40a

Appendix B

state department of natural resources revealed significant

contamination. The policyholder sued its insurer under a policy

which became effective some six months after the leak had

occurred arguing that “the definition of ‘occurrence’ in the policies

[was] broad enough to cover the damage to [the] property which

was continually occurring during the policy periods as

contaminants migrated through the soil and groundwater.” Id. p.

182. The policy at issue (similar to that here) provided that

coverage is triggered by property damage which occurred during

the policy period. With respect to the allegation of continual leakage

into the groundwater, the Sixth Circuit wrote:

Concerning damage to the groundwater, we hold that

the district court erred by granting summary judgment

because there is a genuine issue of material fact

regarding when the groundwater first became

contaminated. Although Inland Waters allowed liquid

waste to escape into the soil in January or February

1981, it cannot be determined from the present record

the length of time required for the contaminants to filter

through the soil and reach the groundwater. If evidence

establishes that the groundwater was first

contaminated after August 1981, there could be

coverage under the occurrence policy, and National

Union could be liable for breach of the duty to defend.

On the other hand, if evidence established that the

groundwater first became contaminated before

August 1981, there would be no coverage, and,

hence, no duty to defend. Accordingly, we reverse

and remand the case to the district court for resolution

4la

Appendix B

of the question of fact as to when the groundwater

first became contaminated.

Id. at p. 187 (italics added)

Here, there is no dispute that at all of the sites in question, the

contamination occurred and the groundwater was affected prior

to the policies at issue. While there still may be some continuing

effect on the groundwater, there is no evidence that any new

pollutants that could have damaged third party property were ever

added to the environment during any of the policies at issue. Cf.

Armotek supra 952 F.2d at 763 (regarding failure “to prove that

separable injury to property occurred after 1979 as the chromic

acid migrated underground”).

Conclusion

In light of the foregoing, defendant Ranger Insura*ce

Company’s July 10, 1996, “Motion for Partial Summary Judgment

Concerning ‘Property Damage During the Policy Period’” is

GRANTED. Summary Judgment is also entered on this issue in

favor of all defendants who have joined in that motion.

5. A similar result was reached in SCSC Corp. supra. There, the

actual injury to third party property occurred as a result of a 1977 spill.

Despite the “continual leaching of chemicals from the soil into the

groundwater,” the Minnesota Supreme Court reversed the trial court’s

application of a “multi-year vertical trigger” which would have triggered

ail policies on the risk during the leaching and found that only the policies

in effect in 1977 were liable. 536 N.W.2d at 318.

42a

Appendix B

INDIANA GAS COMPANY, INC., et al.,

Plaintiffs,

Vv.

AETNA CASUALTY & SURETY COMPANY, etal.,

Defendants.

Civil No. 1:95cv101.

United States District Court,

N.D. Indiana,

Fort Wayne Division.

Oct. 2, 1996.

* * *

ORDER

WILLIAM C. LEE, District Judge.

This matter is before the court on the defendants’ (London

Market Insurers) “Motion for Summary Judgment on All Policies

for Plaintiffs’ Failure to Establish a Fortuitous Accident or

Occurrence”, filed on July 10, 1996.' The parties completed briefing

the motion on August 9,1996.

—

1. Other defendants have joined defendant London Market Insurers’

motion for summary judgment.

43a

Appendix B

Summary Judgment

Summary judgment is proper “if the pleadings, depositions,

answers to interrogatories, and admissions on file, together with

the affidavits, if any, show that there is no genuine issue as to any

material fact and that the moving party is entitled to a judgment

as a matter of law.” Fed.R.Civ.P. 56(c). However, Rule 56(c) is

not a requirement that the moving party negate his opponent’s

claim. Fitzpatrick v. Catholic Bishop of Chicago, 916 F.2d 1254,

1256 (7th Cir.1990). Rule 56(c) mandates the entry of summary

judgment, after adequate time for discovery, against a nartv “who

fails to make a showing sufficient to establish the existence cfan

element essential to that party’s case, and in which that party will

bear the burden of proof at trial.” Celotex Corp. v. Catrett, 477

U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986).

The standard for granting summary judgment mirrors the directed

verdict standard under Rule 50(a), which requires the court to

grant a directed verdict where there can be but one reasonable

conclusion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250,

106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). A scintilla of

evidence in support of the non-moving party’s position is not

sufficient to successfully oppose summary judgment; “there must

be evidence on which the jury could reasonably find for the

plaintiff.” Id. In Re Matter of Wildman, 859 F.2d 553, 557 (7th

Cir.1988); Klein v. Ryan, 847 F.2d 368, 374 (7th Cir. 1988);

Valentine v. Joliet Township High School District No. 204, 802

F.2d 981, 986 (7th Cir.1986). No genuine issue for trial exists

“where the record as a whole could not lead a rational trier of

fact to find for the nonmoving party.” Juarez v. Ameritech Mobiiz

Communications, Inc., 957 F.2d 317, 322 (7th Cir.1 992) (quoting

Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp.,

475 U.S. 574, 586, 106 S.Ct. 1348, 1355-56, 89 L.Ed.2d 538

(1986)).

44a

Appendix B

Initially, Rule 56 requires the moving party to inform the

court of the basis for the motion, and to identify those portions of

the “pleadings, depositions, answers to interrogatories, and

admission on file, together with the affidavits, if any,” which

demonstrate the absence of a genuine issue of material fact,

Celotex, 477 U.S. at 323, 106 S.Ct. at 2552-53. The non- moving

party may oppose the motion with any of the evidentiary materials

listed in Rule 56(c), but reliance on the pleadings alone is not

sufficient to withstand summary judgment. Goka v. Bobbitt, 862

F.2d 646, 649 (7th Cir.1988); Guenin v. Sendra Corp., 700

F.Supp. 973, 974 (N.D.Ind.1988); Posey v. Skyline Corp., 702

F.2d 102, 105 (7th Cir.), cert. denied, 464 U.S. 960, 104 S.Ct.

392, 78 L.Ed.2d 336 (1983).

So that the district court may readily determine whether

genuine issues of material fact exist, under Local Rule 56.1, the

movtng party is obligated to file with the court a “Statement of

Material Facts” supported by appropriate citation to the record to

which the moving party contends no genuine issues exist. In

addition, the non-movant is obligated to file with the court a

“Statement of Genuine Issues” supported by appropriate citation

to the record outlining all material facts to which the non-movant

contends exist that must be litigated. See, Waldridge v. American

Hoechst Corp. et al., 24 F.3d 918 (7th Cir. 1994). In ruling ona

summary judgment n motion the court accepts as true the non-moving

party’s evidence, draws all legitimate inferences in favor of the

non-moving party, and does not weigh the evidence or the credibility

of witnesses. Anderson, 477 U.S. at 249-251, 106 S.Ct. at 2511.

Furthermore, in determining the motion for summary judgment, the

court will assume that the facts as claimed and supported by

admissible evidence by the moving party are admitted to exist

without controversy, except to the extent that such facts are

controveried in the “Statement of Genuine Issues” filed in opposition

to the motion. L.R. 56.1

MMe eke oy

4Sa

Appendix B

Substantive law determines which facts are material; that is,

which facts might affect the outcome of the suit under the governing

law. Anderson, 477 U.S. at 248, 106 S.Ct. at 2510. Irrelevant or

unnecessary facts do not preclude summary judgment even when

they are in dispute. Id. The issue of fact must be genuine.

Fed.R.Civ.P. 56(c), (e). To establish a genuine issue of fact, the

non-moving party “must do more than simply show that there is

some metaphysical doubt as to the material facts.” Matsushita,

475 U.S. at 586, 106 S.Ct. at 1355-56; First National Bank of

Cicero v. Lewco Securities Corp., 860 F.2d 1407, 1411 (7th

Cir.1988). The non-moving party must come forward with specific

facts showing that there is a genuin: issue for trial. Id. A summary

judgment determination is essentially an inquiry as to “whether the

evidence presents a sufficient disagreement to require submission

to a jury or whether it is so one-sided that one party must prevail

as a matter of law.” Anderson, 477 U.S. at 251-252, 106 S.Ct. at

2511. Finally, the court notes that, “[i]t is a gratuitous cruelty to

parties and their witnesses to put them through the emotional ordeal

of a trial when the outcome is foreordained” and in such cases

summary judgment is appropriate. Mason v. Continental Illinois

Nat’ Bank, 704 F.2d 361, 367 (7th Cir.1983).

Discussion

The plaintiffs, Indiana Gas Company, Inc., Richmond Gas

Corporationand Terre Haute Gas Corporation(collectively“Indiana

Gas”), commenced this action by filing a complaint for declaratory

judgment and breach of contract because of the refusal of the five

remaining defendant insurance companies to pay claims for third-

party property damage tendered to them by Indiana Gas under

comprehensive general liability insurance policies. According to

Indiana Gas, the underlying property damage arises out of the

historical gas manufacturing operations that took place at certain

properties now owned by Indiana Gas.

46a

Appendix B

From the early 1800’s until natural gas became widely available

in the 1940’s and 1950's, gas for heating, lighting and cooking

was manufactured by superheating coal and, later, coal combined

with oil. During the manufactured gas era, more than 1,500 cities

and towns across the country had a town gas plant that

manufactured and stored gas until it was distributed directly to the

homes and businesses of the town through a pressurized

underground gas pipeline distribution system. The gas

manufacturing process created tar, as well as other residuals and

wastes, as a by-product. Unfortunately, the residuals, wastes and

by-products from the gas manufacturing process contained

hazardous constituents, such as benzene, which have been

discovered in the subsurface soil and groundwater at properties

where these manufactured gas plants (“MGPs”) were operated.

Nine such former MGP sites: Shelbyville, Lafayette, Bedford,

Greencastle, Huntington, Marion, Richmond, Seymour, and Terre

Haute, Indiana, are at issue in the claims for property damage

which underlie this lawsuit for insurance coverage.

Indiana Gas claims that it has incurred and will continue to

incur millions of dollars in liabilities as the result of state and federal

law requirements to respond to the property damage at and near

certain former MGP sites. According to Indiana Gas, damage to

groundwater beneath the former MGP sites from subsurface

leaching and migration began at most locations prior to 1955 and

continues to the present day.

In support of its motion for summary judgment, defendant

London Market Insurers (“LMI”) argues that the damages caused

by intentional acts are not covered by insurance under Indiana

law, as fortuity is inherent in every contract of insurance. LMI

takes the position that the “occurrences” or “accidents” which

Indiana Gas contends are covered under the policies are the

47a

Appendix B

continuing releases of hazardous substances which derived from

routine business operations and, thus, constitute intentional acts

rather than accidents. LMI argues that Indiana Gas mistakenly

focuses on the result of its intentional acts, by contending that

“occurrences” and “accidents” have taken place because of the

damages arising out of the deliberate and intentional acts associated

with the routine operations of MGPs.

LMI strongly contends that it must be shown that an “accident”

occurred before the inquiry focuses on the question of whether

any resultant damage was expected or intended, as required by

the relevant policies. LMI primarily relies on F idelity and Guar.

Ins. Underwriters, Inc. v. Everett I. Brown Co., L.P., 25 F.3d 484

(7th Cir.1994); Red Ball Leasing v. Hartford Accident & Idem.

Co., 915 F.2d 306 (7th Cir. 1990); and Transamerica Ins. Serv. v.

Kopko, 570 N.E.2d 1283 (Ind.1991). This case law clearly supports

LMI’s position.

In Brown, the Seventh Circuit Court of Appeals expressly

acknowledged the distinction between the issue of whether an act

is an “accident”, and the issue of whether the damages arising

from that act are “expected or intended”. In reconciling two Indiana

appellate decisions with Red Ball Leasing, an earlier Seventh Circuit

opinion, the Court explained that:

At first glance, it may appear that Bolin [v. State Farm

Fire & Casualty Co., 557 N.E.2d 1084

(Ind.Ct.App.1990) ] and [Auto Owners Ins. Co. v.]

Stroud, [565 N.E.2d 1093 (Ind.Ct.App.1991) ], are

inconsistent with Red Ball Leasing. However, a more

exacting look reveals that these cases are not

inconsistent. In both Bolin and Stroud, the insurance

companies argued that there was no “occurrence”

48a

Appendix B

because the insured had “expected or intended” to

cause the injury in question. In Red Ball Leasing,

however, the insurance company did not argue that

the insured “expected or intended” to cause injury.

Rather, the insurance company contended that there

was no “occurrence” because Red Ball had engaged

in intentional conduct which was not an “accident”. In

essence, the Indiana courts have focused on different

terms in the definition of “occurrence” than we have.

Brown, 25 F.3d at 483. The Seventh Circuit then continued with

the following language:

Moreover, the Indiana Supreme Court recently held

that intentional conduct is not “accidental” and thus

not an “occurreace.” (Citing Transamerica Ins. Servs.

v. Kopko, 570 N.E.2d 1283 (Ind.1991)).

Id.

Red Ball Leasing, which was discussed in Brown, is an earlier

Seventh Circuit opinion which held that a volitional act is not an

“accident”. In Red Ball Leasing, a truck leasing company

repossessed leased trucks after an accounting system erroneously

indicated that lease payments had not been made on the trucks.

The lessee subsequently sued Red Ball Leasing for conversion,

breach of contract, aad interference with business opportunities.

Red Ball Leasing recuested that its insurance carrier represent it

in the action. The Seventh Circuit affirmed the district court’s grant

of summary judgment in favor of the insurer, concluding that: “Even

if the mistake in Red Ball’s accounting procedures triggered the

chain of events that ultimately led to the repossession, the decision

to take the trucks--an intentional act of Red Ball — is not an

49a

Appendix B

‘accident’ under the terms of the insurance policy.” 915 F.2d at

311-12.

The holding in Red Ball Leasing was reaffirmed in City of

Jasper, Ind. v. Employers Ins. of Wausau, 987 F.2d 453, 457 (7th

Cir. 1994): Sas

An “accident” for our purposes is defined as “an

unusual, unexpected, and unforeseen event.” Red Ball

Leasing, 915 F.2d at 309; 11 Couch, supra, § 44:288 at

433. The incident at issue does not satisfy this definition.

What happened here, stripped to its essentials, is that

an “action,” not an “accident”, of the City granted Mr.

Habig the right to build two duplexes on his land, to the

unhappiness of his neighbors who thereupon filed suit.

The action was taken purportedly in harmony with the

City’s zoning regulations, and Habig acted on that in

constructing the duplexes. Plainly, by the allegations

of the complaint itself, the City’s action was prompted

by its conclusion that it was authorized by the zoning

ordinance and quite as plainly after much litigation, the

Court of Appeals of Indiana concluded that it was not.

(Footnote omitted). But the City’s error and the fact

that the property damage could have been avoided does

not transform the intended action into an “accident”.

“A volitional act does not become an accident simply

because the insured’s negligence prompted the act.”

Red Ball Leasing, 915 F.2d at 311.

Red Ball Leasing was also followed by Judge McKinney of

the Southern District of Indiana in Allstate Ins. Co. v. Norris, 795

F.Supp. 272 (S.D.Ind.1992). In Norris, the insured shot a bystander

while attempting to “pin down” aa assailant. The insurer sou ghta

50a

Appendix B

declaration that the insured’s homeowner’s policy did not cover

the bystander’s injuries because the injuries were not the result

of an “accident”. The policy at issue in Norris provided that

“Allstate will pay damages which an insured person becomes

legally obligated to pay because of bodily injury or property

damage arising from an accident and covered by this part of the

policy.” (Emphasis added.)

After discussing the facts of Red Ball Leasing, Judge

McKinney stated:

Under the Red Ball analysis, Duane’s injuries here

c. arly diz not result from an accident, and therefore

are not covered under Norris’s policy. This result obtains

even if one assumes that Norris did not fire his gun at

anyone in particular, because it is undisputed that he

meant to fire his gun, and that he meant to fire it in the

direction of the house where Duane was standing.

Norris’s actions therefore were volitional, and clearly

not accidental, whether or not their consequences were

unforeseen. Thus, Duane’s injuries are not covered.

795 F.Supp. at 275.

Similarly, in Terre Haute First Nat’l Bank v. Pacific Employers

Insurance Co., 634 N.E.2d 1336, 1338 (Ind.App. 1993), the Indiana

Court of Appeals stated:

The Policy states simply that “‘[o]ccurrence’ means

an accident.” In the context of insurance coverage, an

accident means an unexpected happening without an

intention or design. National Mutual Insurance Co. v.

Eward (1987), Ind.App., 517 N.E.2d 95, 100. Elkins’

Sla

Appendix B

complaint alleged the Bank’s negligence and breach

of fiduciary duty in acting as his guardian. In other

words, the claim against the Bank arose from a

professional relationship and not from an accident. The

Bank’s purported professional negligence in acting as

Elkins’ guardian cannot be an accident in the plain and

ordinary meaning of that term.

Indiana Gas, however, has taken the position that the

“accident” for which it seeks coverage is the unexpected and

unintended centinuous migration of MGP by-productsand residuals

through tie seil and groundwater and the property damage that

has taken place as a result of that migration. In spite ox the strong

Seventh Circuit precedent discussed above, Indiana Gas relies on

Stillwell v. Brock Brothers Inc., 736 F.Supp. 201 (S.D.Ind.1990),

for the proposition that it is the damage and not the fortuitous act,

which constitutes an “accident”. In Stillwell, the plaintiff

homeowne1 3 had their house re-roofed by the defendant in May of

1987. The re-roofing was performed in a negligent manner, and

when the plaintiffs first turned on the gas furnace in their house in

October of 1987, they suffered personal injury from smoke and

fumes that became trapped in the house as a result of the negligent

re-roofing. Although the plaintiffs’ insurance policy had terminated

on August 10, 1987, they sought coverage under the policy. 736

F.Supp. at 204, 205. The district court granted summary judgment

in favor of the insurance company, finding that the term “accident”

was not ambiguous, and ruling that:

“[A}ecident” refers to the fruits of a negligent act, not

to the sowing of the seeds. It is consequence, not cause,

that constitutes an accident. Transamerica’s failure to

define “accident” within the policy does not render the

word ambiguous.

736 F.Supp. at 206.

52a

Appendix B

In reply to Indiana Gas’ reliance on Stillwell, LMI points out

that the district court in Stillwell did not have the benefit of the

Brown, Red Ball, or Kopko decisions. After careful consideration

of all the relevant case law, this court finds the case law supporting

LMI’s position (and discussed extensively supra ) to be the better

reasoned opinions. Clearly, an intentional act, even one that causes

damage, is simply not an accident, even though the damage itself

may have been unexpected or unintended.

Other states, including California, have recognized this

principle. For example, in IMCERA Group, Inc. v. Liberty Mutual

Insurance Co., 10 Mealy’s Litigation Reports — Insurance # 18

(Calif.Ct. of App.2d Dist. Div. 1) (March 12, 1996), review granted,

54 Cal.Rptr.2d 41, 917 P.2d 1164 the California Court of Appeals

held that:

Even if an “accident” under Liberty’s 1967-1971

policies can be a gradual (non-sudden) event, it

definitely cannot be an intentional act. (See Shell Oil

Co. [v. Winterthur Swiss Ins. Co., supra, 12 Cal.App.4th

[715] at pp. 748- 751 [15 Cal.Rptr.2d 815 (1993) ] ).

In this case, the trial court found that IMCERA

intentionally discharged pollutants onto the soil and that

“{a]ny accidents were purely incidental to normal

operation of any manufacturing plant and did not change

the picture of gradual pollution over time.”

Consequently, because the cause of the property

damage was intentional, not accidental, no coverage

or duty to indemnify existed under the policies. The

fact that some “incidental” accidents may have

contributed to the contamination does not change this

result. “[A] company which engages in systematic

pollution as a concomitant of its normal business

ate ae we Cees ae Tae

53a

Appendix B

practice cannot claim that such pollution was

‘accidental’ ”. (N.H. Ball Bearings v. Aetna Cas. and

Sur. Co. (1st Cir.1995) 43 F.3d 749, 754, discussing

Great Lakes Container v. National Union Fire Ins. (1st

Cir. 1984) 727 F.2d 30, 33; accord, Lumbermens Mut.

v. Belleville Industries (1st Cir.1991) 938 F.2d 1423,

1428-1430 [where manufacturer engaged in intentional,

continuous pattern of pollution as part of business

operation, occasional accident resulting in pollution did

not confer coverage under liability policy], cert. den.

502 U.S. 1073 [112 S.Ct. 969, 117 L.Ed.2d 134

(1992) }.)

IMCERA at 54-55 (footnotes omitted).

Moreover, the distinction between an “accident” or fortuity

(the act) and “damages” (the result) is inherent in every contract

of insurance. As stated by R.E. Keeton in Insurance Law:

A requirement that loss be accidental in some sense in

order to qualify as the occasion for liability of an insurer

is implicit, when not express, because of the very nature

of insurance.

R.E. Keeton, Insurance Law § 5.4(a), at 288 (1971), quoted in

Ostrager & Newman, Handbook on Insurance Coverage Disputes

§ 8.02(a], at 308 (8th ed. 1995). Thus, it is clear that it is imperative

for an “accident” to have occurred before the issue of whether

the damages resulting therefrom were expected or intended need

even be considered.

In the present case, Indiana Gas has not made any showing

that the acts causing the damages at issue were not intentional.

-S4a

Appendix B

Rather, Indiana Gas claims that there is no “intentional acts”

exclusion in the policies, and that at least one of the defendants

has acknowledged that its policies cover the unintended

consequences of intentional acts. Indiana Gas relies heavily on

Aetna’s ten-year old internal claims handling manual, which states

that:

[I]t is important to understand that intentional acts of

an insured may not be excluded. It is only when the

resulting bodily injury or property damage is expected

or intended from the standpoint of the insured that

coverage is excluded for failure to satisfy the

occurrence definition. This is a question of fact and

often involves a degree of uncertainty.

Aetna Casualty & Sur. Co., Commercial Technical Claim Manual,

§ F-1 at F-1-18 (June 1986).

In its reply brief, LMI first points out that Aetna’s claim manual

is not pertinent to the policies issued by any defendant other than

Aetna. Further, LMI argues that the language of the policies at

issue is clear and unambiguous and, thus, extrinsic evidence cannot

properly be considered by this court. This court agrees with LMI.

Citing to Freeman v. Commonwealth Life Ins. Co., 149

Ind.App. 211,271 N.E.2d 177 (1971) and Weinand v. Johnson, 622

N.E.2d 1321 (Ind.App.1993), Indiana Gas argues that the Indiana

courts have found the term “accident” to be ambiguous. However,

as LMI notes, in Weinand, the Indiana court simply acknowledged

that in Indiana it is reversible error to instruct the jury that a plaintiff

may not recover if his damages are the result ofa “mere” or “pure”

accident. The Weinand court went on to state that “[s]uch

instructions are misleading because they suggest that a defendant

55a

Appendix B

is not liable for causing a ‘mere accident,’ even though the

defendant may have been negligent in causing the ‘accident.’”

622 N.E.2d at 1324-25. Clearly, Weinand is not applicable to the

present case.

Likewise, Freeman held that the term “accident” is ambiguous

to laypersons because the term is often used to describe events

caused by negligence and fault. Thus, with respect to a contract

of adhesion, “reasonable foreseeability” was held to not be the

proper test for determining whether the means by which an injury

or death was caused was “accidental”. 271 N.E.2d at 184. As the

present case does not involve a life insurance policy, Freeman has

little (ifany, -pplicability to the present case. Moreover, language

such as that used in the insurance contractsat issue here was held

to be unambiguous by the Indiana Supreme Court in Kopko, supra,

and also by the Stillwell court.

Indiana Gas has also relied on Eli Lilly Co. v. Home Ins. Co.,

482 N.E.2d 467 (Ind.1985), in support of its position that the term

“accident” is ambiguous. However, as LMI argues, the Eli Lilly

court did not consider whether the bodily injury in that case was

an “accident”. Thus, the court had no occasion to determine

whether the term “accident” was ambiguous. Rather, the Eli Lilly

court held that the determination of when the injury occurred for

purposes of the relevant policies was ambiguous, as at least two

possible time considerations, exposure and manifestation, were

relevant. As it was presumed that Eli Lilly did not intentionally

manufacture a product that would injure people, the sole issue was

which policies were required to respond to the claim, not whether

any policies would respond.

Indiana Gas also cites to Indiana Ins. Co. v. O.K. Transport,

Inc., 587 N.E.2d 129 (Ind.App.1992), for the proposition that “a

56a

Appendix B

split of authority among court decisions in construing a term in an

insurance policy demonstrates that the term is ambiguous as a

matter of law.” (Answer brief at p. 7). In O.K. Transport, the

court stated that “[b]ased on the policy language alone, we are

unable to conclude which result was intended by the parties. Both

interpretations strike us as reasonable.” 587 N.E.2d at 132. The

court then noted that other courts were fairly equally divided on

the issue, and then cited a sampling of cases “as examples

supporting the proposition that reasonably intelligent people can

differ” about the contract language at issue. Id. The O.K. Transport

court did not, as Indiana Gas argues, hold that the split of authority

conclusively demonstrated that the policy language was ambiguous.

Additionally, as LMI recognizes, this court has recently

rejected the approach advocated by Indiana Gas. In United Capitol

Ins. Co. v. Special Trucks, Inc., 918 F.Supp. 1250 (N.D.Ind.1996),

this court conducted a lengthy analysis of several terms in an

insurance policy. Only after first looking for Indiana precedent did

this court then search for decisions in other jurisdictions and

considered those cases pro and con to the parties’ respective

positions. Id. at 1255. This court did not first look to see whether

other courts were split on the issue and then mechanically rule in

favor of the policyholder. LMI suggests that, just as in United

Capitol, this court should first look to see whether any Seventh

Circuit precedent exists holding the “occurrence” definition to be

unambiguous as a matter of Indiana law.

In Red Ball Leasing, supra, 915 F.2d at 308-09, the Seventh

Circuit found language similar to the language at issue in the present

case to be clear and unambiguous. Later in Brown, 25 F.3d at 486-

87, the Seventh Circuit reaffirmed Red Ball Leasing, finding no

ambiguity in a policy defining an “occurrence” as “an accident. . .

which results in bodily injury or property damage. . . .”

‘Bezel

57a :

Appendix B

This court will follow Red Ball Leasing and Brown, and thus

finds the term “accident” to be clear and unambiguous. Therefore,

Indiana Gas’ citation to extrinsic evidence is improper, as extrinsic

evidence is inadmissible where no ambiguity exists in the contract.

City of Evansville v. Old State Util. Corp., 550 N.E.2d 1339, 1342

(Ind.App.1990).

Certain of LMI’s policies contain the following definition of

the term “occurrence”, in these words or in substantially similar

language:

The term “occurrence” whenever used herein shall

mean one happening or series of happenings, arising

out of or due to one event taking place during the term

of this contract.

LMI has taken the position that this wording requires that a

“causative event” take place during the policy period, regardless

of when any third party property damage takes place. In support

of this interpretation, LMI cites to Pacific Resources Inc. v.

Oswego Shipping Corporation, No. 81 CIV. 7971, 1984 WL 928

(S.D.N.Y. Sept. 26, 1984); Babcock & Wilcox Co. v. Arkwright-

Boston Mfg. Mutual Ins. Co., No. 5:91CV 0987 (E.D.Ohio, August

19, 1993), aff'd 53 F.3d 762 (6th Cir. 1995); and Public Service

Elec. & Gas Co. v. Certain Underwniters at Lloyd’s London, (“PSE

& G “) Civ. Action 88- 4811 (JCL) (D.N.J.1994).

In Pacific Resources, an insurance policy defined

“occurrence” as a “happening or series of happenings, arising out

of or due to one event taking place during the term of this policy.”

The issue involved coverage for the loss of a vessel which was

sold in 1975 by an entity which knew it to be unseaworthy. Cracks

developed in the vessel’s side plates during a voyage two years

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Appendix B

later, in 1977. An explosion resulted and the vessel sank. The district

court held that the policy applicable to the loss was the 1975 policy

which was in effect when the vessel was sold, rather than the

policy in effect when the vessel sank. The district court explained

that the policy was an “occurrence” policy rather than a “claims-

made” policy, and thus protected the insured from liability for any

act done while the policy was in effect. In contrast, a “claims

made” policy protects the insured against claims made during the

life of the policy. The district court then specifically held:

As discussed above, the “event” giving rise to the

plaintiffs’ loss was the sale of the vessel with the

alleged nondisclosures. The fact that the “happening”

which precipitated the claim occurred in 1977 when

the 1975 policy was no longer in effect does not prevent

plaintiff from recovering under the 1975 policy. The

liability arose out of an event which occurred in 1975

when the policy was in effect.

Pacific Resources, 1984 WL 928 at *4.

In Babcock & Wilcox, as in Pacific Resources and the case

at bar, the term “occurrence” was defined to mean “any happening

or series of happenings, arising out of or due to one event taking

place during the term of this contract. . . .” The plaintiff/insured

claimed that the definition of “occurrence” did not require that the

event which was the cause of the personal injury to occur during

the policy term, but rather, the policy required that the happening

(the injury) occur during the policy period. The Babcock & Wilcox

court discussed this policy language, and the plaintiff/insured’s

interpretation thereof, as follows:

Broken into its components, the definition of

occurrence has four relevant parts: “[1] any happening

Fa i a tad

59a

Appendix B

or series of happenings, [2] arising out of or due to [3]

one event [4] taking place during the term of this

contract.” Plaintiff's analysis focusses primarily upon

the first and third portions of the definition.

Such an interpretation requires the court to ignore the

plain import of the sentence; it would have this court

apply a phrase at the end of the sentence to a phrase

at the beginning of the sentence without regard to any

of the material which lies between. Given the fact that

the temporal restriction follows the term “event” and

is contained in an independent phrase separated from

the description of happening by a comma, the plain

meaning of the sentence is that the event, not the

happening, must occur during the term of the contract.

Id. at 27. This portion of the district court’s opinion was adopted

by the Sixth Circuit Court of Appeals. See 53 F.3d at 766.

Finally, in PSE & G, the New Jersey District Court had before

it an action involving a declaratory judgment for alleged liability

arising out of historic manufactured gas operations. The policies

at issue defined the term “occurrence” to mean “one happening or

series of happening arising out of or caused by one event taking

place during the term of this contract.” This language is identical

to the language in the present case, as well as the language in

Babcock & Wilcox and Pacific Resources, except the defining

phrase does not have a comma after the word “happening”.

Nevertheless, the court followed Babcock & Wilcox and Pacific

Resources, stating that:

The Court is satisfied that, absent the comma, the

definition of “occurrence” in the 1975-79 policies

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Appendix B

should be interpreted the same as the corresponding

definitions in Pacific Resources and Babcock &

Wilcox, to require that the “event” take place during

the policy period. Further, the Court finds that the

“event” alluded to in the policy definition refers to

the contamination itself, such as a leak or spill, and

not to any subsequent leaching or migration of

contaminants. Rather, under the definition leaching

or migration would qualify as the “happening or series

of happenings arising out of ... [the] event.”

Therefore, the Court holds that the 1975-79 policies

may be triggered only if Public Service is able to

present evidence that an “event” as described in the

policy definition of “occurrence,” occurred during

the policy period.

Id. at 12-13.

Indiana Gas argues that the “occurrence” definition in the

policies at issue is ambiguous and must be construed in favor of

Indiana Gas. Indiana Gas cites to Northern Shipping Co. v.

Arkwright Boston Manufacturers Mutual Insurance Company, 617

F.Supp. 136, 138 (E.D.Pa.1985), in support of its argument.

However, in Northern Shipping, the district court did not rule that

the “occurrence” language was ambiguous. Rather, the district

court simply applied the language as it was written in the policy to

the facts of the case before it. Indiana Gas also cites to Commercial

Union Ins. v. Pittsburgh Corning Corp., 553 F.Supp. 425, 434 n. 23

(E.D.Pa.1981). The Commercial Union court simply stated, without

discussion, that “the policy is unclear on whether the ‘occurrence’

or the ‘injury’ must occur during the policy period. This ambiguity

also must be construed in the insured’s favor.” This court first

notes that in Northern Shipping, the court did not follow its own

6la

Appendix B

decision in Commercial Union. Thus, this court finds Commercial

Union to be of little value. Additionally, a decision relied upon by

Indiana Gas in support of its argument that the “causative event”

need not take place during the policy period, Washington Natural

Gas Co. v. Aetna Casualty & Surety Co., No. 91-2-13506-1

(Wash.Super.Ct., King Cty. Sept. 23, 1993), reported in Mealey’s

Lit.Rep.: Insurance, Vol. 7, Iss. 44 (Sept. 28, 1993) at p. 5, Sec. F.,

involved the exact same policy language as is present in the case

at bar. The Washington Natural Gas court stated:

The Stone & Webster policies contained language that

may properly be portrayed as verbose or even

redundant, but it is not language which is either

ambiguous or in need of strained rules of construction.

Id. at 8. This court agrees that the language in the policy is not

ambiguous.’

LMI acknowledges that the Washington Natural Gas court

held that an “event” could be a “process” and “[a]s

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