Petition for Writ of Certiorari — New Castle County v. Hartford Accident & Indemnity Co.

Bupreme Court, U.S, q

Fit& D

|

FFR 161993 |

IN THE

Supreme Court of the Wuite

OCTOBER TERM, 1992

OEFICE OF THE CLERK

NEW CASTLE COUNTY,

Petitioner,

V.

HARTFORD ACCIDENT AND INDEMNITY COMPANY,

a Connecticut Corporation, et al.,

and Defendants,

CONTINENTAL CASUALTY COMPANY,

ieee Respondent.

Petition for Writ of Certiorari to the

United States Court of Appeals

for the Third Circuit

PETITION FOR WRIT OF CERTIORARI

GEORGE H. SEITz IIT JOSEPH D. TYDINGS *

PRICKETT JONES ELLIOTT STEPHAN G. WEIL

KRISTOL & SCHNEE CATHERINE J. SERAFIN

1310 King Street ANDERSON KILL OLICK

Wilmington, DE 19801 & OSHINSKY

WILLIAM W. BowsER 2000 Pennsylvania Avenue, N.W.

LYDIA C.F. ANDERSON Suite 7500

NEw CASTLE CouNTY LAW Washington, D.C. 20006

Depaarecney (202) 728-3100

8th Floor, City/County

Building

Wilmington, DE 19801

Counsel for Petitioner

February 16, 1993 * Counsel of Record

WILSON - EPES PRINTING Co.. INC. - 789-0096 - WASHINGTON, D.C. 20001

QUESTION PRESENTED

Whether this Court should resolve the existing conflict

among the circuit courts of appeals, and the conflict within

the Third Circuit, regarding whether a federal court, sit-

ting in diversity, must consider a relevant lower state

court opinion, regardless of whether the lower state

court’s opinion is final, when that opinion is the only

declaration of the applicable state’s law?

li

LIST OF PARTIES AND RULE 29.1 LIST

The parties to the proceedings below were petitioner

New Castle County, Delaware,” as plaintiff, and respond-

ent Continental Casualty Company, as defendant.

Eleven other insurance company defendants in the dis-

trict court either were dismissed or settled with peti-

tioner before trial, and were not parties in the proceed-

ings as to which petitioner seeks a writ of certiorari.

Those companies are Hartford Accident & Indemnity

Company, The Home Insurance Company, New Hamp-

shire Insurance Company, United States Fire Insurance

Company, Insurance Company of North America, Con-

tinental Insurance Company, United States Liability In-

surance Company, National Union Fire Insurance Com-

pany of Pittsburgh, PA, Twin City Fire Insurance Com-

pany, Aetna Casualty & Surety Company, and Zurich

Insurance Company.**

In addition, the United States Court of Appeals for

the Third Circuit granted the motions to appear and file

briefs as amici curiae of the Insurance Environmental

Litigation Association, E.I. Du Pont de Nemours & Com-

pany, ICI Americas Inc., International Business Machines

Corporation, Olin Corporation, The American Petroleum

Institute, The American Fiber Manufacturers Associa-

tion, and the Chemical Manufacturers Association.

* Petitioner has no parent company and no subsidiaries.

** However, five of those companies (The Home Insurance Com-

pany, United States Fire Insurance Company, Insurance Company

of North America, United States Liability Insurance Company, and

Aetna Casualty & Surety Company), have been served with this

petition, because Continental Casualty Company filed cross-claims

against those companies, which were mooted by the decision as to

which petitioner seeks a writ of certiorari.

TABLE OF CONTENTS

RPRPEUURRUPOY BP URMBEDMBEO REMIND oiccccssvcsisccscscessncscncssenssescssessses i

LIST OF PARTIES AND RULE 29.1 LIST .................. ii

SARa OR AUT TERRI TRS .....2.cccc.c.cccsccccccccccceccceccescess iv

cc sulsaatbbnlonubeonews euaeibines 1

EE EEE a 2

STATEMENT OF THE CASE ............................00c0c000. 2

A. Material Facts ...... hv 5B BRET EDGE SIAR AE 2

B. Procedural Background .2.000000000.0....... o-oo eee 6

1. The Initial Proceedings in the Trial Court.... 6

2. CNA’s First Appeal .................... online ilieas | a)

3. The Proceedings in the Trial Court on Re-

mand ........ 1 el hat TE OEP Baan eo li Ae 8

4. CNA’s Second Appeal ..................0..0..... ioeeniaes 9

REASONS FOR GRANTING THE WRIT |... 11

RE BEN ERE AN 13

THIS COURT SHOULD RESOLVE THE INTER-

CIRCUIT AND INTRA-CIRCUIT CONFLICTS

REGARDING WHETHER, IN A DIVERSITY

CASE, A CIRCUIT COURT MUST CONSIDER

A RELEVANT INTERLOCUTORY LOWER

STATE COURT DECISION THAT IS THE

ONLY DECLARATION OF THE APPLICABLE

cdc wincstineniisciesnasionnstcnemnsanhbnbsens 13

a TREES ee 20

(iii)

iv

TABLE OF AUTHORITIES

Cases: Page

Commercial Union Ins. Co. v. Bituminous Casu-

alty Co., 851 F.2d 98 (3d Cir. 1988), on remand,

No. CIV. 87-325, 1989 WL 5818 (D.N.J. Jan. 25,

Lee OT | SRC! NT WDA 2558-408 16

Diginet, Inc. v. Western Union ATS, Inc., 958 F.2d

Re UD Gs ND cee vhecetnee 18

E.I. Du Pont de Nemours & Co. v. Admiral Insur-

ance Co., No. 89C-AU-99 (Del. Super. Ct. Sept.

19, 1990), motion for reconsideration denied

fe | BRR rE Lee ne 15

Erie Railroad Co. v. Tompkins, 304 U.S. 64

SET RE S TERE OD AN cose LS toate 18

Fidelity Union Trust Co. v. Field, 311 U.S. 169

| TRO RIENCE SENS me Lk, Sone oe passim

Giguere v. United States Steel Corp., 262 F.2d 189

(7th Cir. 1959), cert. denied, 860 U.S. 934

f. | eee PERE RE Fe TS TON SRS MERE 12, 17,18

Hamme v. Dreis & Krumpf Mfg. Co., 716 F.2d 152

< ft | ee ee sensediciaetbeias 12, 18, 19

Hicks v. Feiock, 485 U.S. 624 5 Ee 14

Lomax v. Nationwide Ins. Co., 964 F.2d 1843 (3d

Rs I Rac EB nT 16

National Union Fire Ins. Co. of Pittsburgh, Pa. v.

Rhone-Poulene Basic Chems. Co., No. 87C-SE-11

(Del. Super. Ct. Jan. 16,1992)... passim

New Castle County v. Continental Casualty Co.,

725 F. Supp. 800 (D. Del. 1989) passim

New Castle County v. Continental Casualty Co.,

728 F. Supp. 324 (D. Del. 1989) 2

New Castle County v. Hartford Accident & Indem.

Co., 673 F. Supp. 1359 (D. Del. 3 eee 1,5,6,7,8

New Castle County v. Hartford Accident & Indem.

Co., 685 F. Supp. 1321 (D. Del. Sea 1,6

New Castle County v. Hartford Accident & Indem.

OE LS a ee ee

Vv

TABLE OF AUTHORITIES—Continued

Page

Northern Ins. Co. v. Aardvark Assocs., Inc., 942

Pome TOD (Oe Cir. OBE) oncnnc.cccccc:...............s... 16

Pentech Int'l, Inc. v. Wall Street Clearing Co., Nos.

92-7222, 92-7264, 1779, 1863, 1993 WL 5018 (2d

es i By SD ee ere 12,17

In re President and Fellows of Harvard College,

149 F.2d 69 (1st Cir. 1945)... 18

Rhone-Poulenc Basic Chems. Co. v. American

Motorists Ins. Co., 616 A.2d 1192 (Del. 1992). 16

Richardson v. United States, 841 F.2d 993 (1988),

appeal after remand, 948 F.2d 1107 (9th Cir.

1991), cert. denied, 112 S. Ct. 1473 (1992) ...12, 17, 18

West v. American Telephone & Telegraph Co., 311

Seas EOE cus acters passim

Williams v. First Federal Savings & Loan Associa-

tion, 651 F.2d 910 (4th Cir. 1981) 12, 17

Wisniewski v. Johns-Manville Corp., 759 F.2d 271

(1985), aff'd, 812 F.2d 81 (3d Cir. 1987) 16

Zimmerman v. Mathews Trucking Corp., 203 F.2d

864 (8th Cir. 1958) adspublans adetaseeoea. . 18,19

Statutes:

28 U.S.C. § 1254(1) (Supp. 1992) _. 2

28 U.S.C. § 1332 (a) (1) (Supp. 1992) rs . 6

42 U.S.C. § 6901 et seg. (Supp. 1992) pine ise 5

42 U.S.C. § 9601 et seg. (Supp. 1992) 6

Other Authorities:

Del. Const. of 1897, Art. IV §7........ 11

Del. Const. of 1897, Art. IV §11, as amended

S| Tecan OE AER E-LEN: AURA RRMN oe cs ates) 19

R. Stern, E. Gressman, and S. Shapiro, Supreme

Court Practice (6th Ed. 1986) . . 12

IN THE

Supreme Coot of the United States

OCTOBER TERM, 1992

No. ——

NEW CASTLE COUNTY,

. Petitioner,

HARTFORD ACCIDENT AND INDEMNITY COMPANY

a Connecticut Corporation, et al.,

Defendants,

’

and

CONTINENTAL CASUALTY COMPANY,

Respondet.

Petition for Writ of Certiorari to the

United States Court of Appeals

for the Third Circuit

PETITION FOR WRIT OF CERTIORARI

Petitioner New Castle County (“the County’) respect-

fully requests that a writ of certiorari be issued to review

the judgment and opinion of the United States Court of

Appeals for the Third Circuit in New Castle County v.

Hartford Accident & Indemnity Co., 970 F.2d 1267 (3d

Cir. 1992) (“New Castle VII’).

OPINIONS BELOW

The opinions of the district court on partial summary

judgment motions, and after a 1989 trial of remaining

factual issues, are reported at 673 F. Supp. 1359 (D. Del.

1987) (“New Castle I); 685 F. Supp. 1321 (D. Del.

1988) (“New Castle II”); 725 F. Supp. 800 (D. Del.

2

1989) (“New Castle III”): and 728 F. Supp. 324 (D.

Del. 1989) (“New Castle IV’). Respondent Continental

Casualty Company (“CNA”) appealed portions of New

Castle I and New Castle III, and the decision in favor of

the County in New Castle IV, to the Third Circuit Court

of Appeals. See New Castle County v. Hartford Accident

& Indem. Co., 933 F.2d 1162 (3d Cir. 1991) (“New

Castle V’’).

In New Castle V, the Third Circuit in 1991 affirmed

the district court in part, reversed in part, and remanded

the case to the district court. The district court decided

in favor of the County on remand in November 1991.

See New Castle County v. Hartford Accident & Indem.

Co., 778 F. Supp. 812 (D. Del. 1991) (“New Castle VI’).

CNA appealed New Castle VI to the Third Circuit Court

of Appeals, which reversed the decision of the trial court

on July 28, 1992, as amended August 4, 1992. See New

Castle VII, 970 F.2d at 1273. The County filed a Peti-

tion for Rehearing and Suggestion for Rehearing En

Bane in the Third Circuit on August 11, 1992. That peti-

tion was denied on November 18, 1992. The opinions in

New Castle VI and New Castle VII are reprinted in the

Appendix hereto.

JURISDICTION

This is a petition for review of the Third Circuit’s

July 28, 1992 decision in this diversity case. A timely

Petition for Rehearing and Suggestion for Rehearing En

Bane was denied on November 18, 1992, and this Peti-

tion for Writ of Certiorari was timely filed. This Court’s

jurisdiction is invoked under 28 U.S.C. $ 1254(1) (Supp.

1992).

STATEMENT OF THE CASE

A. Material Facts

This is an environmental insurance coverage case in-

volving a municipal sanitary landfill. The ultimate issue

is whether CNA (which sold comprehensive general lia-

3

bility insurance to the County), or the County’s tax-

payers, must pay in excess of six million dollars to clean

up unexpected environmental damage caused by the land-

fill. The County did not know that the landfill would

cause environmental pollution.

Many federal and state courts currently have similar

actions pending between policyholders and insurance com-

panies. Those actions are addressing whether standard-

form liability insurance contracts, such as those at issue

here, obligate the insurance companies to pay the costs to

defend policyholders, and to pay policyholders’ legal lia-

bility, in connection with environmental damage claims.

Those actions involve important issues, and hundreds of

millions, if not billions, of dollars.

The municipal landfill in this case is located in New

Castle County, Delaware, at Tybouts Corner (“the Ty-

bouts site”). The County leased the land in 1968, and

designed the landfill to be a reclamation project, where-

by municipal refuse w_s used to fill in or reclaim land

that was otherwise v>usable because of prior sand and

gravel extraction operations. New Castle III, 725 F. Supp.

at 803.

Delaware had no permitting requirements for landfills

when the County leased the Tybouts site. Nonetheless, the

County voluntarily agreed to comply with proposed draft

landfill regulations, and to obtain permits from the Dela-

ware State Board of Health (“Board of Health”) and

the Delaware Water and Air Resources Commission

(“WARC”) for the Tybouts site. Jd. at 805.1 Those

The proposed regulations required the submission of “a series

of soil borings, taken to the depth of the groundwater table and

sufficient in number to give a valid indication of the underlying

conditions,” and other information about the site. Before these

requirements, the State of Delaware (“the State”) had virtually

no regulations governing solid waste disposal except for general

public health laws relating to control of potential nuisances, such as

blowing paper, rats, and sea gulls. Jd. at 804.

4

regulations did not even mention the term “leachate” (a

liquid substance created when precipitation filters through

a landfill). Jd. at 804.

The design and operation of the Tybouts site was based

on then-existing state-of-the-art landfill specifications.

When operations began at the site, experts believed that

precipitation filtration through the refuse and underlying

soil layers of the site would result in the discharge of

potable water from the site as the sole leachate. Pollution

was not expected. Jd. at 804.

While applying for the Board of Health and WARC

permits, the County investigated the site and consulted

with experts, including Delaware state officials and Uni-

versity of Delaware scientists. Jd. The County relied

upon those experts in the evaluation of all site informa-

tion, because it had no expertise of its own in hydro-

geology, soils, or water analysis. Jd... WARC reported to

the County that the State thought Tybouts would be a

“model” landfill. New Castle III, 725 F. Supp. at 805-06.

The Tybouts site was open from January 1969 through

July 1971, when it became full. In accordance with the

Board of Health and WARC permits, the Board of

Health and WARC inspected the site on a regular basis.

In addition, the Board of Health and WARC had the

authority to require corrective action or to close the land-

fill. The County operated the Tybouts site pursuant to

permits from the State for the entire period that the site

was open.

* The County submitted Substantially more data to the State than

was required to obtain permits. New Castle 111, 725 F. Supp. at

804-05. The County drilled more soil borings than were required,

either by the draft regulations or by current standards. Jd. at 804.

Some borings were drilled deeper than was required. Jd. Based on

the borings, the County’s draftsmen prepared cross-section diagrams

of the soil, which also were not required, to assist the State in

reviewing the data. /d.

>) arene

5

The permits required the University of Delaware to

conduct a research and testing program to monitor

groundwater quality under the site. The University reg-

ularly sent the test results to the State and the County.

Throughout the period of operation, those reports indi-

cated that leachate from the site was not contaminating

groundwater under the site. In fact, the tests affirmed

that groundwater under the site remained within federal

drinking water standards, and the trial court found that

it was “eminently reasonable for the County to conclude,

based on [the University of Delaware] test results, that

Tybouts posed no risk to surrounding properties.” New

Castle III, 725 F. Supp. at 815.

The County purchased two primary and two excess

comprehensive general liability (“CGL”) insurance pol-

icies from CNA. CNA’s primary liability insurance pol-

icies were effective from August 1, 1973 to July 1, 1974,

and from July 1, 1974 until January 1, 1975, respectively,

and provided liability limits of $1 million per “occur-

rence.” * CNA’s excess liability insurance policies were

effective from May 11, 1973 to July 1, 1974, and from

July 1, 1974 until July 1, 1975, respectively, and pro-

vided liability limits of $5 million per “occurrence.” New

Castle III, 725 F. Supp. at 807-08.

Three actions subsequently were filed against the

County which alleged bodily injury and/or property dam-

age arising out of the operation of the Tybouts site. The

first action was brought by the United States against the

County and others, pursuant to the Resource Conserva-

tion and Recovery Act (“RCRA”), 42 U.S.C. § 6901 et

seq. (Supp. 1992), and the Comprehensive Environmental

Response, Compensation and Liability Act (“CERCLA”),

3 The CNA policies defined an “occurrence” as:

. an accident, including injurious exposure to conditions,

which results, during the policy period, in bodily injury or

property damage neither expected nor intended from the stand-

point of the insured.

New Castle I, 673 F. Supp. at 1363 n.5.

6

42 U.S.C. § 9601 et seq. (Supp. 1992). New Castle Ill,

725 F. Supp. at 808; New Castle V, 933 F.2d at 1173.

That action was settled in 1988.

The other two actions were private actions that were

filed against the County by property owners who lived

near the site. Those actions were settled in 1992.

B. Procedural Background

1. The Initial Proceedings in the Trial Court

The County filed this action in 1985 in Delaware Su-

perior Court against the twelve insurance companies, in-

cluding CNA, which sold primary and excess CGL insur-

ance policies to the County from the 1960's until the

1980’s. The County sought a declaration that the insur-

ance companies were obligated to pay the costs of defense,

and to pay for the County’s legal liability, in the three

actions against the County arising out of the operation of

the Tybouts site. The insurance companies removed the

case to the United States District Court for the District

of Delaware, which had jurisdiction pursuant to 28 U.S.C.

s 1332(a) (1) (Supp. 1992).

The trial court issued two opinions on summary judg-

ment. See New Castle I, 673 F. Supp. 1359; New Castle

II, 685 F. Supp. 1321. In New Castle I, the trial court

interpreted, under the governing Delaware law, the ex-

ception portion of the pollution exclusion clause in CNA’s

policies. The question considered by the court was

whether the exception to the pollution exclusion, for “sud-

* The pollution exclusion clause in CNA’s policies precludes in-

surance coverage for:

bodily injury or property damage arising out of the discharge,

dispersal, release or escape of smoke, vapors, soot. fumes, acids,

alkalis, toxic chemicals, liquids or gases, waste materials or

other irritants, contaminants or pollutants into or upon land,

the atmosphere or any watercourse or body of water, but this

exclusion does not apply if such discharge, dispersal, release or

escape is sudden and accidental.

New Castle I, 673 F. Supp. at 1362 n.4 (emphasis added).

7

den and accidental” pollution damage, applied in this

case.

CNA asserted that the exception to the exclusion did

nut apply on the premise that the environmental damage

at issue purportedly was not “sudden,” because it took

place, unbeknownst to the County, over a period of years.

However, in 1970, when the insurance industry sought

approval from state insurance commissioners to include

the pollution exclusion in CGL insurance policies, the in-

surance industry represented that the exclusion was

aimed at intentional pollution, and was merely a clari-

fication of the policy definition of “occurrence,” which

excluded insurance coverage only for damage that was

expected or intended from the standpoint of the policy-

holder. New Castle I, 673 F. Supp. at 1363.°

Thus, CNA’s contention that the exclusion precluded

coverage for unexpected gradual pollution was incon-

sistent with the insurance industry representations to

insurance commissioners when the pollution exclusion was

approved for use in CGL insurance policies. The trial

court, therefore, interpreted the phrase “sudden and ac-

cidental” to be consistent with the “occurrence” defin1-

tion and to mean “unexpected and unintended.” Jd. at

1364.

Prior to trial, all defendants, except CNA, either were

dismissed from the action or settled with the County. A

seven-day bench trial was held in June of 1989. The

trial court ruled that CNA had a duty to pay the costs

of the County’s defense in the three actions against the

County. The trial court also ruled that CNA had a duty

to pay for the County’s legal liability in the United

5 As noted above, the CNA policies defined an “occurrence” as:

. . . an accident, including injurious exposure to conditions,

which results, during the policy period, in bodily injury or

property damage neither expected nor intended from the stand-

point of the insured.

Td. at 1363 n.5.

8

States’ action against the County. New Castle III, 725

F. Supp. at 820.¢ Additionally, the trial court reiterated

its prior ruling in New Castle I that the pollution exclu-

sion did not bar coverage for unexpected gradual pollu-

tion, and found that covered “occurrences” took place dur-

ing CNA’s policy periods. Jd. at 813-16. CNA then ap-

pealed the trial court’s rulings.

2. CNA’s First Appeal

CNA appealed the trial court’s ruling concerning the

pollution exclusion clause. In New Castle V, the Third

Circuit affirmed the trial court’s ruling that the pollution

exclusion did not exclude coverage for environmental pol-

lution as long as the policyholder did not expect or intend

the damage. 933 F.2d at 1198-99.

The Third Circuit also reversed the trial court in part,

ruling that the pollution exclusion clause focuses on

whether the policyholder expected or intended to dis-

charge “contaminants” or “pollutants,” rather than on

whether the policyholder expected or intended any prop-

erty damage from such a discharge. Id. at 1208, 1207.

Because the trial court had focused only on the fact

that the County did not expect the Tybouts site operation

to cause damage, the Third Circuit remanded the case for

a determination of whether the County expected to dis-

charge “contaminants.” Jd. Accordingly, on remand, to

escape its coverage obligations, CNA bore the burden of

proving that the County expected or intended to discharge

“contaminants” from the Tybouts site. Jd. at 1182, 1207.

3. The Proceedings in the Trial Court on Remand

In June of 1991, the County and CNA proposed, and

the trial court agreed, that the issue on remand could be

resolved on the existing record. CNA contended that, be-

cause leachate from the Tybouts site recently had come to

*The County did not seek a ruling at trial regarding the in-

demnity issue with respect to the two private actions. Jd. at 819.

9

be considered a “contaminant,’”’ CNA’s policies did not

provide insurance coverage for liability resulting from

that leachate. After briefing and oral argument, the trial

court determined that CNA had failed to meet its burden

of proof.

The trial court ruled, as a matter of Delaware law,

that whether the leachate should be considered a “con-

taminant,” within the meaning of the pollution exclusion,

turned on the knowledge of what was a contaminant that

existed as of the time of contract formation, not the

knowledge that existed years later, when a dispute under

the contracts arose. New Castle VI, 778 F. Supp. at 819-

20. The trial court also made a factual finding that, at

the time of contracting, the County did not know that

the leachate released from the Tybouts site contained

any “contaminants” within the meaning of CNA’s policies.

Accordingly, the trial court ruled that the pollution ex-

clusion did not exclude coverage. Jd. at 817-18. CNA ap-

pealed New Castle VI on December 2, 1991.

4. CNA’s Second Appeal

After CNA filed its second appeal to the Third Circuit,

but before briefing in the Third Circuit, in a compre-

hensive 54-page decision, the Delaware Superior Court

adopted the reasoning of New Castle VJ in an environ-

mental insurance coverage case involving the same

Tybouts site at issue in this case. See National Union

Fire Ins. Co. of Pittsburgh, Pa. v. Rhone-Poulenc Basic

Chems. Co., No. 87C-SE-11, slip op. at 50-51 (Del. Super.

Ct. Jan. 16, 1992) (“Rhone-Poulenc”) (reproduced in the

Appendix hereto). The Delaware Superior Court ruled

that the standard-form CGL insurance contract at issue in

Rhone-Poulenc, which contains substantially the same pro-

visions as CNA’s contracts in this case, did not preclude

coverage if the policyholder did not know, at the time of

contracting, that the substances at issue at the Tybouts

site were harmful. Rhone-Poulenc, No. 87C-SE-11, slip op.

at 43, 49-50.

10

Oral argument on CNA’s second appeal to the Third

Circuit was held on June 18, 1992, before Circuit Judges

Nygaard and Greenberg, and District Judge Pollak. In

an opinion which cannot be reconciled with Delaware law

as set forth in Rhone-Poulenc, that panel reversed the dis-

trict court, without even citing Rhone-Poulenc.

Ignoring the recent, contrary decision in Rhone-Poulenc,

the Third Cireuit in New Castle VII ruled that the term

“contaminants” in the pollution exclusion clause could be

construed without reference to the knowledge existing at

the time of contract formation and that, in this case, the

exclusion precluded coverage for liability arising out of

discharged leachate, even though the County did not know

that the leachate contained a harmful substance (7.e., a

contaminant) until well after CNA’s policies had expired.

970 F.2d at 1271-73.

Thus, this diversity case presents a remarkable scen-

ario. The district court opinion, which found in the

County’s favor, was adopted by a Delaware state court

as a correct expression of Delaware law. That opinion

later was reversed by the Third Circuit, which ignored

the intervening Delaware State court opinion, apparently

on the ground that the opinion was interlocutory. There-

fore, if this case had not been removed by the insurance

companies to the federal district court from the Delaware

State court, where the County originally had filed it, the

County ultimately may have prevailed.

On August 11, 1992, the County filed a timely petition

for rehearing in the Third Circuit. On November 18,

1992, that petition was denied. The County now seeks a

writ of certiorari to the United States Court of Appeals

for the Third Circuit.

11

REASONS FOR GRANTING THE WRIT

This diversity case presents an important and far-

reaching issue which has given rise to a conflict among

the United States Circuit Courts of Appeals, and a con-

flict within the Third Circuit, and which never has been

addressed by this Court. That issue is whether a federal

court sitting in diversity may, under West v. American

Telephone & Telegraph Co., 311 U.S. 223 (1940)

(“West”), and Fidelity Union Trust Co. v. Field, 311

U.S. 169 (1940) ( “Fidelity Union’’),’ completely ignore a

highly pertinent state court decision, simply because that

decision is interlocutory, when predicting how the highest

state court would rule. In this case, the Third Circuit did

just that. It failed even to mention the relevant, non-final

Delaware Superior Court decision, involving the same

factual circumstances, in Rhone-Poulenc, which cited with

approval the decision then under review by the Third

Circuit, and was the only relevant Delaware state court

decision. Under West and Fidelity Union, where an ap-

plicable state’s highest court has not yet ruled on an

issue, a federal court exercising diversity jurisdiction is

required to defer to the relevant rulings of state courts

immediately below the state’s highest court, unless there

is “persuasive data” that the state’s highest court would

rule otherwise. West, 311 U.S. at 237; accord Fidelity

Union, 311 U.S. at 177-79.

This Court has not addressed how a federal court sit-

ting in diversity should treat non-final lower state court

decisions that are the only relevant statement of state

7 West involved the deference due to an intermediate appellate

state court decision. However, in Fidelity Union, this Court con-

sidered decisions of a New Jersey trial court, and held that West

also applied to decisions of a trial court, where an appeal from that

court is taken directly to the highest state court. Fidelity Union,

311 U.S. at 178-79. The Delaware Superior Court is a court of

state-wide jurisdiction, and Delaware has no intermediate courts of

appeal. Like the decisions in Fidelity Union, decisions of the Dela-

ware Superior Court are appealed directly to the highest court of

the state. See Del. Const. of 1897, Art. IV § 7.

12

law. In the absence of guidance from this Court, federal

courts sitting in diversity have given conflicting treatment

to such relevant, non-final lower state court decisions.

The Second, Fourth, Seventh, and Ninth United States

Circuit Courts of Appeals have ruled that, even if a rele-

vant lower state court decision is not final, West controls

and federal courts are “not free to reject the state rule

merely because it has not received the sanction of the

highest state court.” West, 311 U.S. at 236.% In direct

contrast, the Third Circuit in this case ignored a relevant,

non-finai lower state court decision, in predicting how

Delaware’s highest court would rule. Thus, there is a

conflict among the circuit courts on this issue.

Further, an earlier opinion of the Third Circuit indi-

cates that there is a conflict on this issue even within the

Third Cireuit. In Hamme v. Dreis & Krumpf Mfg. Co.,

716 F.2d 152 (3d Cir. 1983) (“Hamme”), the three panel

members each favored a different approach to the ques-

tion, and the panel ultimately decided to give deference to

a non-final lower state court Opinion. Jd. at 154-55 n.4,

157.

“One of the prime purposes of [this Court’s] certiorari

jurisdiction is to bring about uniformity of decisions”

among the circuit courts. R. Stern, E. Gressman, and S.

Shapiro, Supreme Court Practice, § 4.4 at 197 (6th Ed.

1986). Further, where, as here, an inter-circuit conflict

is accompanied by an intra-circuit conflict on a recurring

issue, the reasons for granting certiorari become even

more compelling. Jd., § 4.6 at 205.

8 See, e.g., Pentech Int’l, Inc. v. Wali Street Clearing Co., Nos.

92-7222, 92-7264, 1779, 1863, 1993 WL 5013 at *4, *5 (2d Cir. Jan.

13, 1993) (“Pentech”) - Williams v. First Federal Savings & Loan

Association, 651 F.2d 910, 927 n.37 (4th Cir. 1981) (“Williams”) -

Giguere v. United States Steel Corp., 262 F.2d 189, 193 (7th Cir.

1959), cert. denied, 360 U.S. 934 (1959) (“Giguere”); Richardson

v. United States, 841 F.2d 993, 996 (1988), appeal after remand,

943 F.2d 1107 (9th Cir. 1991), cert. denied, 112 S. Ct. 1473 (1992)

(“Richardson’’),

13

The appropriate treatment by federal courts sitting in

diversity of relevant interlocutory precedent from lower

state courts is fundamental to the federal system of gov-

ernment. The issue of when, or under what circumstances,

a federal court is obligated to consider a rule of law

adopted by a lower state court is a frequent, and often

critical, issue in diversity cases. This Court should provide

guidance to the circuit courts on this issue in order to

alleviate the injustice caused by existing practices, which

often result in federal court decisions on issues of state

law that are inconsistent with lower state court decisions.

Thus, a party may obtain a different result on the same

issue of state law, depending on whether the party is

litigating in federal or state court. That is precisely what

happened here and is the very result that this Court was

seeking to avoid by its decisions in Erie Railroad Co. v.

Tompkins, 304 U.S. 64, 78-80 (1938) (“Erie”), West,

and Fidelity Union. 311 U.S. at 237; 311 U.S. at 177-78.

ARGUMENT

THIS COURT SHOULD RESOLVE THE INTER-

CIRCUIT AND INTRA-CIRCUIT CONFLICTS RE-

GARDING WHETHER, IN A DIVERSITY CASE, A

CIRCUIT COURT MUST CONSIDER A RELEVANT

INTERLOCUTORY LOWER STATE COURT DECISION

THAT IS THE ONLY DECLARATION OF THE AP-

PLICABLE STATE’S LAW

In Erie, 304 U.S. at 78-80, this Court held that federal

courts in diversity cases must apply state law as expressed

by the state’s highest court. Two years later, this Court

held that, in the absence of relevant precedent from the

state’s highest court, a federal court sitting in diversity

must defer to relevant final precedent from the state

courts immediately below the state’s highest court, unless

there is “persuasive data” that the state’s highest court

would rule otherwise:

There are many rules of decision commonly accepted

and acted upon by the bar and inferior courts which

14

are nevertheless laws of the state although the highest

court of the state has never passed upon them. In

those circumstances a federal court is not free to

reject the state rule merely because it has not received

the sanction of the highest state court, even though it

thinks the rule is unsound in principle or that another

is preferable. State law is to be applied in the federal

as well as the state courts and it is the duty of the

former in every case to ascertain from all the avail-

able data what the state law is and apply it rather

than to prescribe a different rule[.]

West, 311 U.S. at 236-37 (emphasis added, citations

omitted); Fidelity Union, 311 U.S. at 177-79. See also

Hicks v. Feiock, 485 U.S. 624, 630 (1988).

In reaching its decision in this case, the Third Circuit

ignored the highly relevant, non-final Delaware Superior

Court decision in Rhone-Poulene.

In Rhonc-Poulenc, the Delaware Superior Court inter-

preted a standard-form insurance contract, which con-

tained substantially the same provisions as those that are

at issue here, under analogous facts. Indeed, the Rhone-

Poulene court considered whether insurance companies

were required, under their standard-form CGL insurance

policies. to pay the costs of Rhone-Poulenc’s defense for

one of the very same actions at issue here—an action filed

by the United States against the policyholder in Rhone-

Poulenc, as well as the County, concerning environmental

damage from the Tybouts site. No Delaware Supreme

Court decision has addressed these issues.

In its complaint at issue in Rhone-Poulenc and in this

case, the United States alleged that “known carcinogens”

were contained in Rhone-Poulenec’s waste and were de-

posited at the Tybouts site. Rhone-Poulenc, No. 87C-SE-

11, slip op. at 50. The Delaware Superior Court found

that the insurance companies had a duty to pay the costs

of Rhone-Poulene’s defense in that action, because ‘the

[underlying] complaint simply does not demonstrate that

[Rhone-Poulenc] expected or intended to discharge a

15

pollutant into or upon the land or any watercourse or body

of water|.|” Jd. at 47.

Rhone-Poulene was decided prior to the argument to the

Third Circuit in this case. It expressly adopted the rea-

soning of the New Castle VI ruling, that insurance cover-

age for environmental damage is not barred under a CGL

insurance policy unless, at the time of contracting, the

substance that was discharged was known to be a “con-

taminant”:

This factor is significant in light of the District

Court’s conclusion [in New Castle VI] that the par-

ties’ understanding of the term “contaminant” was

determined by what was recognized as a contaminant

at the time the contract was made. New Castle

County v. Hartford Acc. & Indem. Co., C.A. No. &85-

436-JLL, slip op. at 17 (D.Del. Nov. 4, 1991). The

court noted that “the risk that a certain substance

will later be discovered to be a pollutant is not rea-

sonably foreseeable, it is not the kind of risk that is

normally understood to be placed on the insured. [’]

Id. at 50 n.46 (emphasis added) .°

Instead of following Rhone-Poulenc—or, indeed, even

considering it—the Third Circuit simply ruled that

whether the leachate discharged from Tybouts should be

considered a “contaminant,” under the pollution exclusion

clause, should be determined based upon the current

understanding of what constitutes a contaminant, rather

than upon the understanding of what constituted a con-

taminant at the time the contracts were executed. New

Castle VII, 970 F.2d at 1272. As a result of the Third

® Similarly, in EJ. Du Pont de Nemours & Co. v. Admiral Insur-

ance Co., No. 89C-AU-99 (Del. Super. Ct. Sept. 19, 1990), motion

for reconsideration denied (Jan. 13, 1992) (“Du Pont’’), the Dela-

ware Superior Court denied the summary judgment sought by the

insurance companies, because there were disputed issues of fact as

to whether the substances released were known “pollutants,” or

simply substances used in Du Pont’s active manufacturing opera-

tions. Id., slip op. at 9-10.

16

Circuit’s apparent determination that it was entitled to

ignore Rhone-Poulenc, the County was held to have no

insurance coverage for its liability arising out of the

Tybouts site. need

The Rhone-Poulene decision, although not final, remains

the law of the case in that pending litigation. Further,

there is no indication that the Delaware Supreme Court

would rule contrary to the decision in Rhone-Poulenc.’°

Accordingly, under West and Fidelity Union, the Third

Circuit was not entitled to ignore the Rhone-Poulenc deci-

sion simply because the lower state court decision is not

final.”

West and its companion cases involved lower state court

decisions that were final. This Court has not yet resolved

whether federal courts sitting in diversity are required,

under West and Fidelity Union, to consider relevant lower

state court decisions that are not final at the time of the

federal court’s decision when there is no ruling from the

state’s highest court. There is a conflict among the deci-

sions of the circuit courts that have been presented with

this situation.

The Second, Fourth, Seventh, and Ninth Circuits have

followed relevant, non-final lower state court decisions

10 Indeed, the Delaware Supreme Court previously accepted an

interlocutory appeal regarding another issue decided in Rhone-

Poulenc, and affirmed the Delaware Superior Court’s ruling on that

issue. See Rhone-Poulenc Basic Chems. Co. v. American Motorists

Ins. Co., 616 A.2d 1192 (Del. 1992).

11The Third Circuit’s decision to ignore Rhone-Poulenc is as-

sumed to be based on the interlocutory status of that decision, since

the Third Circuit previously has considered final lower state court

decisions in situations where the applicable state’s highest court

had not ruled. See, e.g., Lomax v. Nationwide Ins. Co., 964 F.2d

1348, 1345, 1347 (3d Cir. 1992); Northern Ins. Co. v. Aardvark

Assocs., Inc., 942 F.2d 189, 192 (3d Cir. 1991); Wisniewski v.

Johns-Manville Corp., 759 F.2d 271, 274 (1985), aff’d, 812 F.2d 81

(3d Cir 1987); Commercial Union Ins. Co. v. Bituminous Casualty

Co., 851 F.2d 98, 100-01 (3d Cir. 1988), on remand, No. CIV. 87-325,

1989 WL 5818 (D.N.J. Jan. 25, 1989).

17

under West and Fidelity Union. By contrast, as shown

above, the Third Circuit completely ignored a relevant

interlocutory decision of the applicable state’s lower

court.**

In the recent Pentech decision, the Second Circuit, cit-

ing West, followed a relevant decision of a lower state

court, despite the fact that the state court proceeding had

not yet resulted in a final judgment. Jd. at *4.

Additionally, the Fourth Circuit followed an interlocu-

tory decision of a Virginia trial court in Williams. 651

F.2d at 927 n.37. Moreover, the Fourth Circuit followed

the holding of the Virginia Circuit Court despite the fact

that an appeal was pending in that case to the Virginia

Supreme Court:

It is only the [lower state court] case’s lack of finality

because of the pending appeal which prevents us from

giving preclusive effect in this matter of state law.

However, for the reasons we have advanced, the case

appears to have been rightly decided.

Id. (citing West and its companion cases).

Similarly, in Giguere, the Seventh Circuit applied the

decision of an Illinois appellate court, despite having been

informed that discretionary review had been granted by

the Illinois Supreme Court:

On oral argument, counsel informed us that the Su-

preme Court of Illinois has permitted an appeal in

the Rylander case. Nevertheless, we do not feel it

advisable that we should hold up the decision of the

case at bar until such time as the Illinois Supreme

Court may decide the Rylander appeal. We do not

12 See, e.g., Pentech, at *4; Williams, 651 F.2d at 927 n.37;

Giguere, 262 F.2d at 193; Richardson, 841 F.2d at 996.

8 It is unclear whether other circuits also have taken this ap-

proach. Absent an express statement by a court that it is not con-

Siuering a relevant lower state court decision on the ground that

it is interlocutory, there is no reasonable way to determine whether

other courts also have ignored relevant interlocutory lower state

court opinions.

18

know of any persuasive data which would lead us to

believe that the Illinois Supreme Court would reverse

the Rylander decision. West v. American Telephone

& Telegraph Company, 311 U.S. 223, 236, 237, 61

S.Ct. 179, 85 L.Ed. 139.

262 F.2d at 193. The court thus determined that, absent

persuasive data indicating that the highest state court

would rule otherwise, it would apply a lower state court

decision that was not yet final.

Finally, in Richardson, the Ninth Circuit held that the

district court erred in following the Ninth Circuit’s prior

decision in the same action as “law of the case,” when a

Washington state appellate court since had held, in an

interlocutory decision, that the Ninth Circuit’s prior de-

cision was an incorrect interpretation of Washington law.

The Ninth Circuit held that there should be an exception

to the “law of the case” doctrine “where there has been

a dispositive intervening decision of an intermediate ap-

pellate state court.” 841 F.2d at 996. The Ninth Circuit,

therefore, also follows relevant, non-final lower state court

decisions under West."

14 Various circuit court judges have stated that procedures other

than the two outlined above should be followed. For example, Judge

Magruder of the First Circuit expressed the view that a stay of

federal proceedings might be appropriate until after a pending

state supreme court proceeding resolved a critical issue of state law

implicated in the federal proceeding. See Jn re President and Fel-

lows of Harvard College, 149 F.2d 69, 72-73 (1st Cir. 1945); see

also Hamme, 716 F.2d at 154-55 n.4; Zimmerman v. Mathews Truck-

ing Corp., 203 F.2d 864, 867-68 (8th Cir. 1953) (“Zimmerman’’).

There may be other decisions in which federal courts have suggested

or granted stays in this situation, but we have found only a few

published opinions on this issue.

Circuit courts also have questioned whether certification proce-

dures, if available, must be used in any situation where a state’s

highest court has not yet ruled on the issue being considered by the

federal court. See, e.g., Diginet, Inc. v. Western Union ATS, Inc.,

958 F.2d 1388 (7th Cir. 1992). The Delaware legislature recently

has voted to amend the provisions of the Delaware Constitution

regarding certification of questions of law to the Delaware Supreme

Court. Effective January 28, 1993, the Supreme Court of the United

:

o

19

Thus, decisions of at least four other circuits conflict

with the Third Circuit’s decision in this case.

Moreover, an earlier decision of the Third Circuit dem-

onstrates that there is a conflict even within the Third

Cireuit concerning whether a relevant, non-final lower

state court decision must be considered, in the absence of

a high court ruling. In Hamme, 716 F.2d at 154, the

majority held that the lower state court decision should

be followed. In that case, the three judges on the sharply

divided panel each favored a different approach to whether

deference should be accorded to a lower court decision

that was the subject of a petition for certiorari to the

Pennsylvania Supreme Court: (i) one judge believed that

the lower court decision should be followed; (ii) another

judge believed that the lower court decision should not be

considered; and (iii) the third judge believed that the

federal] court should wait to rule until the state court

decision was final.“ Yet, in New Castle VII, the Third

Circuit followed a different procedure—it ignored a non-

final lower state court decision.

Thus, there is a conflict among the circuits, and even a

conflict within the Third Circuit, concerning whether,

under West and Fidelity Union, the federal courts must

consider relevant. non-final lower state court decisions, in

situations where the state’s highest court has not spoken.

The lack of guidance from this Court has resulted in cir-

cumstances, such as those in this case, in which a federal

States, a federal court of appeals of the United States, or a United

States district court may certify questions of law to the Delaware

Supreme Court. Del. Const. of 1897, Art. IV $11, as amended

(1993). At the time New Cactle VII was decided, Delaware did not

permit circuit courts to certify questions of law to the state’s high-

est court.

In an analogous situation, the Eighth Circuit suggested. in

dicta, that the parties should have made the federal trial court

aware of a pending state court case which would be dispositive of

the identical issue presented to that court: “The federal District

Court should then have been requested to defer its ruling on the

motion until the final determination of the [state court] case.”

Zimmerman, 203 F.2d at 868.

20

court decides to usurp the power of a state court by ig-

noring, and, therefore, effectively “reversing,” a rele-

vant, non-final lower state court decision, for federal but

not state litigants. Guidance from this Court is necessary

to create uniformity among the circuits, and within the

Third Circuit, concerning the procedure to be followed

by the federal judiciary when deciding matters of state

law not ruled on by the state’s highest court, where a

relevant, non-final lower state court decision exists.

Petitioner believes that relevant, non-final lower state

court decisions should be treated as cases controlled by

West and its companion cases. Accordingly, this Court

should vacate New Castle VII, because it is inconsistent

with West.

CONCLUSION

This Court should provide guidance, and resolve the in-

ter-circuit and intra-circuit conflicts, regarding the proper

treatment by federal courts sitting in diversity of rele-

vant, non-final decisions of lower state courts. Thus, the

County respectfully requests that a writ of certiorari be

issued to review the judgment of the United States Court

f Appeals for the Third Circuit in New Castle VII.

Respectfully submitted,

GEORGE H. SE!ITz III JOSEPH D. TYDINGS *

PRICKETT JONES ELLIOTT STEPHAN G. WEIL

KRISTOL & SCHNEE CATHERINE J. SERAFIN

1310 King Street ANDERSON KILL OLICK

Wilmington, DE 19801 & OSHINSKY

(302) 888-6500 2000 Pennsylvania Avenue, N.W.

Suite 7500

WILLIAM W. BOWSER

LyDIA C.F. ANDERSON

NEW CASTLE COUNTY LAW

DEPARTMENT

8th Floor, City/County

Building

(302) 571-7530

Washington, D.C. 20006

(202) 728-3100

Counsel for Petitioner

February 16, 1993 * Counsel of Record