Petition for Writ of Certiorari — Jackson v. Chemical Leaman Tank Lines, Inc.

Supreme Gourt, U..

PILED

96 634 NCI < i 19%.

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

ROBIN ANTHONY GILDART JACKSON, an Underwriter

at Lloyd’s, London on behalf of himself and as a

representative of Certain Underwriters at Lloyd’s, London,

and Certain Subscribing London Market

Insurance Companies,

Petitioners,

VS.

CHEMICAL LEAMAN TANK LINES, INC.,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

PETITION FOR WRIT OF CERTIORARI

WILLIAM S. WACHENFELD

Counsel of Record

JOHN G. MCANDREWS

HENRY LEE

OLYMPIA DASKALAKIS

MENDES & MOUNT, LLP

750 Seventh Avenue

New York, New York 10019

(212) 261-8000

Attorneys for Petitioners

Robin Anthony Gildart Jackson, an

Underwriter at Lloyd's, London et al.

QUESTIONS PRESENTED

(1) Whether the Court of Appeals applied the wrong legal

standard to review the District Court’s determination as a

matter of law on a critical element required by the controlling

state law in a diversity action, thereby removing genuine fact

issues from the jury’s consideration.

(2) Whether the application of regulatory estoppel by the

Court of Appeals for the first time on appeal to preclude en-

forcement of the plain, temporal meaning of the pollution ex-

clusion without an evidentiary hearing to establish the factual

elements for estoppel denied petitioner insurers their due

process rights as guaranteed by the Fifth Amendment.

PARTIES TO THE PROCEEDINGS

AND RULE 29.6 STATEMENT

The parties to the proceedings in the United States Court of

Appeals for the Third Circuit were Chemical Leaman Tank

Lines, Inc. (as plaintiff-appellee); Aetna Casualty & Surety

Company and Robin Anthony Gildart Jackson, an Under-

writer at Lloyd’s, London, on behalf of himself and as repre-

sentative of Certain Underwriters at Lloyd’s, London, and

Certain Subscribing London Market Insurance Companies (as

defendants-respondents) as follows:

PETITIONERS’ RULE 29.6 STATEMENTS

1. Accident and Casualty Company of Winterthur (now

known as Winterthur Swiss Insurance Company)

Parent Companies:

Winterthur Swiss Insurance Company is a subsidiary of

Winterthur Insurance.

Subsidiaries:

None.

2. Alba General Insurance Company Ltd.

Parent Companies:

Alba General Insurance Co. Ltd. is a subsidiary of Gen-

eral of Berne Insurance Company (also known as Berner

Allegemeine Versicherungs Gesellschaft).

Subsidiaries:

None.

3. Allianz Cornhill International Insurance ple

(formerly known as Allianz International Insurance

Co., Ltd.)

Parent Companies:

Allianz Cornhill International Insurance plc is a division

of Cornhill Insurance plc whose ultimate parent corpora-

tion is Allianz Aktiengesellschaft (AG) Holding.

Subsidiaries:

None.

4. Argonaut Northwest Insurance Company

Parent Companies:

Argonaut Northwest Insurance Company’s outstanding

capital stock, except for director’s qualifying shares (6),

is owned by Argonaut Insurance Company. Ownership of

that company since October 1, 1986 has been held by

Argonaut Group, Inc. (DE), a Los Angeles based holding

company.

Subsidiaries (except for wholly owned):

None.

5. Assicurazioni Generali S.P.A.

Parent Companies:

Assicurazioni Generali S.P.A. is the parent company of

the Generali Group whose shares are quoted on Italian

stock exchanges.

Subsidiaries (except for wholly owned):

None.

6. Baloise Fire Insurance Company

Parent Companies:

Baloise Fire Insurance Company is a wholly owned sub-

sidiary of Baloise Holding, the parent company of the

Baloise Group.

Subsidiaries (except for wholly owned):

None.

7. Bellefonte Insurance Company Limited

Parent Companies:

Bellefonte Insurance Company Limited was merged into

Northwestern National Insurance Group, whose

10.

iv

immediate parent is Armco Financial Services Corp., and

whose ultimate parent is Armco Inc.

Subsidiaries (except for wholly owned):

None.

Certain Underwriters at Lloyd’s, London

Parent Companies:

The Underwriters at Lloyd’s, London are natural persons.

Subsidiaries (except for wholly owned):

None.

CNA International Reinsurance Co. Ltd. (formerly

known as CNA Reinsurance of London Co. Ltd.)

Parent Companies:

CNA International Reinsurance Co. Ltd., a member of

the CNA Financial Group, is directly owned (100%) by

CNA Management Company Limited, a down-stream

holding company of Continental Casualty Company,

Chicago, Illinois which in turn is controlled by CNA Fi-

nancial Corporation, Chicago, Illinois, the parent and

holding company of the CNA Insurance Group. The ul-

timate holding company is Loews Corporation in New

York, N.Y.

Subsidiaries (except fer wholly owned):

None.

Delta Lloyd Non-Life Insurance Company

Parent Companies:

Delta Lloyd Non-Life Insurance Company is a wholly

owned subsidiary of Commercial Union International

Holdings, Ltd. which in turn is owned by Commercial

Union plc, a publicly owned company.

Subsidiaries:

None.

11.

12.

13.

Dominion Insurance Company Limited

Parent Companies:

Dominion Insurance Company Limited’s ultimate hold-

ing company is La Fondiaria Spa. Its immediate holding

company is Mominion Insurance Holdings Ltd (100%)

Subsidiaries (except for wholly owned):

None.

Drake Insurance Company Limited (now known as

Sphere Drake Insurance plc)

Parent Companies:

Sphere Drake Insurance plc is under the ultimate control

of Sphere Drake Holdings Limited, a Bermuda holding

company. Sphere Drake Holdings Limited’s financial

control resides with senior management and a group of

international investors, which retain 53.73% ownership

of the holding company. Among the institutional inves-

tors are: Centre Capital Investors L.P., an investment

partnership affiliated with Lazard Freres & Co. (N.Y.);

The Dai-Tokio Fire & Marine Insurance Company Lim-

ited; Electra Investment Trust P.L.C. and John C. Head

II].

Subsidiaries (except wholly owned):

None.

Excess Insurance Company Limited

Parent Companies:

Excess Insurance Company Ltd. is a wholly owned sub-

sidiary of London & Edinburgh Insurance Group Limited

which is incorporated in England which in turn is a

wholly owned subsidiary of Hartford International Insur-

ance Company (formerly Abbey International Corpora-

tion), Delaware, US. The ultimate parent is ITT

Corporation, New York, which also owns ITT Hartford

Insurance Group.

14,

vi

Subsidiaries (except for wholly owned):

None.

Fidelidade Insurance Company

Parent Companies:

Fidelidade Insurance Company is controlled by the gov-

ernment of Portugal through the Caixa Geral de Deposi-

tos which owns 97% of the shares. The balance of shares

is held directly by the government. The Caixa Geral de

Depositos is a wholly owned government bank.

Subsidiaries:

None.

15.

Gan Minster Insurance Company Limited (formerly

known as Minster Insurance Company Ltd.)

Parent Companies:

Gan Minster Insurance Company Limited is a wholly

owned subsidiary of Financial Holdings Limited. Its ul-

timate parent company is Societe Centrale du Gan,

France.

Subsidiaries (except wholly owned):

(1) Progress Insurance Company Ltd.

(2) Progress Assurance SA

(3) Arthur Street Investments Ltd.

(4) Arthur Street Management Ltd.

(5) Hobbs Savill Ltd.

(6) Minster Assets Ltd.

(7) Minister Development Co. Ltd.

(8) Minster Discount & Guarantee Co. Ltd.

(9) Minster Estate & Property Co. Ltd.

(10) Minsure Nominees Ltd.

(11) Robert Bradford & Co. Ltd.

(12) Robert Bradford Ltd.

(13) Touchline Service Ltd.

16.

17.

18.

vii

Helvetia Accident Swiss Insurance Company Limited

(now known as ELVIA Swiss Insurance Co. Ltd.)

Parent Companies:

Elvia Swiss Insurance Co. Ltd. is a publicly traded com-

pany that is listed on several European stock exchanges.

In 1991 SwissRe Holding Limited and Swiss Re, Zurich,

acquired a majority share of the voting capital of Elvia

Swiss Insurance Company.

Subsidiaries:

None.

London and Edinburgh Insurance Company Limited

Parent Companies:

London and Edinburgh Insurance Company Limited is a

wholly owned subsidiary of London and Edinburgh In-

surance Group Limited, incorporated in England which

in turn is a wholly owned subsidiary of Hartford Interna-

tional Insurance Company (formerly Abbey International

Corporation), Delaware, US. The ultimate parent is ITT

Corporation, New York, which also owns ITT Hartford

Insurance Group.

Subsidiaries (except for wholly owned):

Excess Underwriting Management Singapore Limited.

National Casualty Company

Parent Companies:

National Casualty Company’s controlling stock is owned

by Nationwide Life Insurance Company, which acquired

complete control on December 31, 1993. Operations are

directed by the same general management which runs the

Nationwide Group.

Subsidiaries:

None.

Viii

19. National Casualty Insurance of America Ltd.

20.

21.

22.

Parent Companies:

National Casualty Company Insurance of America Ltd.’s

controlling stock is owned by Nationwide Insurance

Company, which acquired complete control on December

31, 1993. Operations are directed by the same general

management which runs the Nationwide Group.

Subsidiaries:

None.

New London Reinsurance Company Limited (now

known as NRG Victory Reinsurance Ltd.)

Parent Companies:

NRG London Reinsurance Company Ltd. is a wholly

owned subsidiary of NRG (U.K.) Holdings Limited

which in turn is majority owned by Internationale

Verzekeringen N.V.

Subsidiaries:

None.

North Atlantic Insurance Company Limited

(formerly known as British National Insurance Com-

pany Limited)

Parent Companies:

North Atlantic Insurance Company’s parent company is

CI Holdings Limited. The ultimate parent is Wingfield

Limited.

Subsidiaries:

None.

River Thames Insurance Company Limited

Parent Companies:

River Thames insurance Company Limited’s immediate

holding company is Transamerica Insurance Company,

|

ix

incorporated in the United States, which owns 51% of the

company. The ultimate holding company is Transamerica

Corporation, also incorporated in the United States. The

remaining 49% is owned by Sedgwick Group plc, which

is incorporated in Great Britain.

Subsidiaries (except for wholly owned):

None.

23. Scottish Lion Insurance Company

Parent Companies:

Scottish Lion Insurance Company’s parent company is

China Merchants’ Holding Company Limited.

Subsidiaries:

None.

24. Sovereign Marine & General Insurance Company

Limited

Parent Companies:

Sovereign Marine & General Insurance Company Lim-

ited is wholly owned by Willis Corroon Group ple, a

holding company with numerous insurance brokerage

subsidiaries, whose shares are traded on the London

Stock Exchange.

Subsidiaries (except for wholly owned):

None.

25. Sphere Insurance Company Limited (now known as

Sphere Drake Insurance plc)

Parent Companies:

Sphere Drake Insurance plc is under the ultimate control

of Sphere Drake Holdings Limited, a Bermuda holding

company. Sphere Drake Holdings Limited’s financial

control resides with senior management and a group of

international investors, which retain 53.73% ownership

of the holding company. Among the institutional

26.

aie

28.

x

investors are: Centre Capital Investors L.P., an invest-

ment partnership affiliated with Lazard Freres & Co.

(N.Y.); The Dai-Tokio Fire & Marine Insurance Com-

pany Limited; Electra Investment Trust P.L.C. and John

C. Head III.

Subsidiaries (except for wholly owned):

None.

St. Paul International Insurance Company Limited

(formerly known as St. Katherine Insurance Co. Ltd.)

Parent Companies:

St. Paul International Insurance Company Limited is a

wholly owned subsidiary of St. Paul (UK) Limited, a

holding company incorporated in the United Kingdom.

Direct stock ownership of the holding company is held

by the St. Paul Companies Inc., a publicly traded holding

company in the United States.

Subsidiaries (except for wholly owned):

None.

Swiss Union Gerneral Insurance Company Limited

Parent Companies:

Swiss Union General Insurance Co. Ltd.’s majority of

capital was acquired by Generali-Assicurazioni Generali

S.P.A. in December 1987,

Subsidiaries (except for wholly owned):

None.

Taisho Marine & Fire Insurance Company (Europe)

Ltd. (formerly known as Taisho Marine & Fire In-

surance Company (U.K.) Ltd.)

Parent Companies:

Taisho Marine & Fire Insurance Company (Europe)

Limited’s ultimate holding company is Mitsui Marine

29.

30.

31.

xi

and Fire Insurance Company Limited (previously named

Taisho Marine and Fire Insurance Company Limited).

Subsidiaries (except for wholly owned):

None.

Tokio Marine & Fire Insurance Company (U.K.)

Limited

Parent Companies:

Tokio Marine & Fire Insurance Company (U.K.) Limited

is wholly owned by the Tokio Marine and Fire Insurance

Company Limited of Japan.

Subsidiaries (except for wholly owned):

None.

Turegum Insurance Company

Turegum Insurance Company is a wholly owned subsidi-

ary of Zurich Insurance Company (also known as Zurich

Versicherungs-Gesellschaft).

Subsidiaries:

None.

Unionamerica Insurance Company Limited

Parent Companies:

Unionamerica Insurance Company Limited was pur-

chased by International Insurance Investors L.P., Key-

stone Inc., and Acadia Partners L.P. from The

Continental Corporation on September 10, 1993. The

company’s immediate parent became Unionamerica Ac-

quisition Company Limited, incorporated in England and

a subsidiary of the ultimate parent Unionamerica Hold-

ings plc, also incorporated in England.

Subsidiaries (except for wholly owned):

None.

xii

32. World Auxiliary Insurance Corporation Limited

Parent Companies:

World Auxiliary Insurance Corporation Limited is a

wholly owned subsidiary of Commercial Union Assur-

ance Company ple which is, in turn, a wholly owned

subsidiary of Commercial Union plc.

Subsidiaries:

None.

33. Yasuda Insurance Company (U.K.) Limited

Parent Companies:

Yasuda Fire & Marine Insurance Company of Europe

Limited is a wholly owned by of Yasuda Fire & Marine

Insurance Company Limited, Japan.

Subsidiaries:

None.

Petitioners before this Court are Robin Anthony Gildart

Jackson, an Underwriter at Lloyd’s, London on behalf of him-

self and as a representative of Certain Underwriters At

Lloyd’s, London, and Certain Subscribing London Market

Insurance Companies as listed more fully above.

xiii

TABLE OF CONTENTS

FURS TIONS PRESEN Pe viccccccsseccesereossonsorssesceseseee

PARTIES TO THE PROCEEDINGS

AND RULE 29.6 STATEMENT..............cccccccceeseseee.

TPR OF FA ID peesecesesvsesscccvscrsesosecececeses

JURISDICTIONAL STATEMENT ..........0.ccccc0000000-

CONSTITUTIONAL AND STATUTORY

Pr ye NE oo sccccscosesoesescevaccesenceses

I.

THE COURT OF APPEALS APPLIED THE

WRONG LEGAL STANDARD TO RE-

VIEW THE DISTRICT COURT’S DE-

TERMINATION AS A MATTER OF LAW

ON A CRITICAL ELEMENT REQUIRED

BY THE CONTROLLING STATE LAW IN

THIS DIVERSITY ACTION, THEREBY

REMOVING GENUINE FACT ISSUES

FROM THE JURY’S CONSIDERATION ....

A. The Court Must Grant Review To Con-

strain The Court of Appeals To Apply

The Correct Standard Of Judicial Re-

view For Removing Essential Fact

Issues From The Factfinder’s Consid-

Nee ccnonereees

14

II.

Xiv

APPLICATION OF REGULATORY ES-

TOPPEL BY THE COURT OF APPEALS

FOR THE FIRST TIME ON APPEAL TO

PRECLUDE ENFORCEMENT OF THE

PLAIN, TEMPCRAL MEANING OF THE

POLLUTION EXCLUSION WITHOUT AN

EVIDENTIARY HEARING TO ESTAB-

LISH THE FACTUAL ELEMENTS FOR

ESTOPPEL DENIED PETITIONER IN-

SURERS THEIR DUE PROCESS RIGHTS

AS GUARANTEED BY THE FIFTH

AMENDMENT. ........-cccscsscesscscscecenscesssssecssens

A. An Evidentiary Hearing Would Have

Shown That Chemical Leaman Could

Not Sustain Its Burden To Establish The

Requirements of Estoppel. .............::000+

CONCLUSION .....cccccsccsssscsncococcsvsovssnsseversrssncnscssssonsoes

Page

18

20

XV

TABLE OF AUTHORITIES

Cases:

Anderson v. Liberty Lobby, Inc., 477 U.S. 242

[EE tac ehieisseteceaan es sncosdiaics ceensncanbiniobtidaiiabataibiabciiigetbanens

Atlantic Coast Line R. Co. v. Powe, 283 U.S. 401

58 | RRR SE Ma RO EO Re aCe ea eRe

Brady v. Southern Railroad, 320 U.S. 476 (1943) ....

Carlsen v. Masters, Mates & Pilots Pension Plan

Trust, 403 A.2d 880 ON. 1979)....cccocccscsscccscccsreeee

Deposit Guaranty Nat'l Bank v. Roper, 445 U.S.

FAG Fe aicncersniictsnahtinsainenadmmbidindnasvibecsckeimisceun

Dick v. New York Life Ins. Co., 359 U.S. 437 (1959)

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

Supp. 138 (C.D. Cal. 1979), aff'd. in part &

rev d. in part, 669 F.2d 1259 (9th Cir. 1982)........

Greene v. McElroy, 360 U.S. 474 (1959) .........cccccee

Horsemen's Benevolent & Protective Ass'n vy.

Atlantic City Racing Ass'n, 487 A.2d 707 (N.J.

ig | ER RARE T Een a TSN aR RS ERIN ee NCD

House v. Mayo, 324 U.S. 42 (1945).......ccccccceseseeeeeeees

Joint Anti-Fascist Comm. v. McGrath, 341 U.S. 123

ERSURE Deihinsssasssetaveicdeebbenldcdaiccbinciedisatiucsaniesoacoseses

Joy Technologies Inc. v. Liberty Mut. Ins. Co., 421

De OR Oo Vile LOE iictetdsvsssnininpdennbierdiceiannianee

Joy Technologies Inc. v. Liberty Mut. Ins. Co., No.

88-C-96-F, Hearing Tr. (W.Va. Circuit Ct. Oct. 5,

SYS secs sei ep slab eich ectivainasaseinasadbiilinisiinianahdnanieies

J.T. Baker v. Aetna Casualty & Surety Co., 1996

U.S. Dist. LEXIS 11600 (D.N.J. Aug. 5, 1996)...

xvi

Lynch v. United States, 292 U.S. 571 (1934)...

Lytle v. Household Mfg.,Inc., 494 U.S. 545 (1990)...

Matthews v. Eldridge, 424 U.S. 319 (1976) .........00

McDermott Int'l Inc. v. Wilander, 498 U.S. 337

OBST) cvciicrsonccevstetessinaccinentinnemubeinedureaptensnenmmmtnanbes

Miller v. Miller, 478 A.2d 351 (N.J. 1984)...

Morton Intern., Inc. v. General Accident Ins. Co. of

Am., 629 A.2d 831 (N.J. 1993), cert. denied, 114

S.Ct. ZIG4 (EDA) ose ccecereresianesercarnessenssnavsmnseasenenient

Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d

F768 ON, TOD) ccvvcccirsessessiseanatassoenetsaensorvenesienaneeanes

Public Service Comm'n v. Brashear Freight Lines

Frac, FOE U.S. ZF CF GFF) ncnessesrsersasscnarconesasnses antes

Senko v. La Crosse Dredging Corp., 352 U.S. 370

CFDS T evicicrsnscvsesecinnstsunbhceseaebanaiaticanioniecabiasaasens

State of New Jersey v. Signo Trading Int'l. Inc., 612

Ar.2d G32 CNS. 19GZ) .cnnccerscosrosncssnisanvnrsencarsonsssecienn

Sunal v. Large, 332 U.S. 174 (1947) ....cccccseeseseereenes

United States v. Carver, 260 U.S. 482 (1923).........-.

United States Trust Co. v. New Jersey, 431 U.S. 1

(19 TT) .cavsecscocssesrsasonrviosesnescesnvioneunnnssentatensectvienveneees

Vandenbark v. Owens-Illinois Glass Co., 311 U.S.

B58 1 FDG Yo cacssresdocinercosixasveeesigepieeinniptemmaanmanss

Voorhees v. Preferred Mut. Ins. Co., 607 A.2d 1255

CIN.J. 19DZ) w.cccincssicosnsersrensssannabensonnsnsabsehebbventiinpranenes

Wolff v. McDonnell, 418 U.S. 539 (1974) uu...

Passim

1]

18

15

13

18

18

19

10

19

Page

Constitution of the United States:

I Passim

Statutes and Rules:

8. «7 SS eee 2

cs nosisupnasnbnmanvovdoussarsess 7

SRR EEE RN Re Rane 14

on. cansumeoabancns aaa Passim

I IY isis scl:cs conctvansonsesnnenstucynaceuneapnane 9,10

PN Boi i tisocsciactacievsinsvuvcesinescossccoseesevseesaonene 14

TABLE OF CONTENTS OF APPENDIX

Order of the United States Court of Appeals for the

Third Circuit, Chemical Leaman Tank Lines, Inc. v.

Aetna Casualty & Surety Company, et al., denying

petition for rehearing by Robin Anthony Gildart

Jackson, Underwriter at Loyds, London, et al., July

Bley: AON vies tiviesaaientiibabasiaaeaaetetadn eaten

Opinion of the United States Court of Appeals for

the Third Circuit, Chemical Leaman Tank Lines,

Inc. v. Aetna Casualty & Surety Company, et al., 89

Fe FPP ii ntcvnnitencnl cole danarbic dco thade:

Order of the United States Court of Appeals for the

Third Circuit granting panel rehearing, and vacating

opinion, Chemical Leaman Tank Lines, Inc. v.

Aetna Casualty & Surety Company, et al., 68 F.3d

We Ee Reniconints teshincouiviinenrteaieaconaaateaaad keteeaiieeetas

Opinion of the United States Court of Appeals for

the Third Circuit, Chemical Leaman Tank Lines,

Inc. v. Aetna Casualty & Surety Company, et al., 68

Fie ATAU Ioinsninctnietndansssneceissiaieenasaconnae

Opinion of the United States District Court for the

District of New Jersey, Chemical Leaman Tank

Lines, Inc. v. Aetna Casualty & Surety Company, et

al. (unreported), November 8, 1993..........ccccccccccceseee.

Opinion of the United States District Court for the

District of New Jersey, Chemical Leaman Tank

Lines, Inc. v. Aetna Casualty & Surety Company, et

ai. (unreported), April 22, 1993 ...........c.scrsscsssrsrsesnees

A-|

A-74

A-75

xix

Page

Judgment Order of the United States District Court

for the District of New Jersey, Chemical Leaman

Tank Lines, Inc. v. Aetna Casualty & Surety

Company, et al., granting judgment in favor of

Chemical Leaman, April 7, 1993 .......:sseseseeereerees A-155

Special Verdict Form of the United States District

Court for the District of New Jersey, Chemical

Leaman Tank Lines, Inc. v. Aetna Casualty &

Surety Company, et al., April 7, 1993... A-158

Opinion of the United States District Court for the

District of New Jersey, Chemical Leaman Tank

Lines, Inc. v. Aetna Casualty & Surety Company, et

al., 817 F. Supp. 1136 (1993) ......seeccesesersereseneenenees A-174

Opinion of the United States District Court for the

District of New Jersey, Chemical Leaman Tank

Lines, Inc. v. Aetna Casualty & Surety Company, et

al., 788 F. Supp. 846 (1992) ....sseccsseseeesesesereeneneneenens A-234

Petitioner Insurers’ Revised Joint Jury Instruction

(excerpts) to the United States District Court for the

District of New Jersey, Chemical Leaman Tank

Lines, Inc. v. Aetna Casualty & Surety Company, et

i cabeideicanksbapiaddaresiaantenniadaiaimsdanmmnbnliweniis A-251

Official Charge of the Jury (excerpts) in the United

States District Court for the District of New Jersey,

Chemical Leaman Tank Lines, Inc. v. Aetna

Casualty & Surety Company, et Al.........::ccseeeee A-254

Transcript of Proceedings of United States District

Court for the District of New Jersey (Jury Charge),

Chemical Leaman Tank Lines Inc. v. Aetna

Casualty & Surety Company, et. al., (excerpts),

April 6, 1993. .....sssesscseseseseneersnsssscessssssnsenenenennenenenees A-260

Petitioner Insurers’ Petition for Rehearing to the

United States Court of Appeals for the Third Circuit

and Suggestion for Rehearing En Banc in Chemical

Leaman Tank Lines, Inc. v. Aetna Casualty &

Surety Company, et al. (July 5, 1996)............0...0..26. A-270

Amicus Curiae Brief of the State of New Jersey

Department of Environmental Protection to the

United States Court of Appeals for the Third

Circuit, filed in Chemical Leaman Tank Lines, Inc.

v. Aetna Casualty & Surety Company, et al.

CINE Bas BS Ris dois sfcnscrneneionacads cc cvpi skavake reusesleinictes A-290

Insurer Aetna Casualty & Surety Co.’s Post-Trial

Reply Brief and Exhibits to the United States Court

of Appeals for the Third Circuit (excerpts), in

Chemical Leaman Tank Lines, Inc. v. Aetna

Casualty & Surety Company, et al. (June 17, 1994)... A-300

Petitioner London Market Insurers’ Post-Trial

Reply Brief and Exhibits to the United States Court

of Appeals for the Third Circuit (excerpts), in

Chemical Leaman Tank Lines, Inc. v. Aetna

Casualty & Surety Company, et al. June 7, 1994...... A-329

Petitioner London Market Insurers’ Post-Trial Brief

and Exhibits to the United States Court of Appeals

for the Third Circuit (excerpts), in Chemical

Leaman Tank Lines, Inc. v. Aetna Casualty &

Surety Company, et al. (April 4, 1994)...00000000..... A-379

Insurer Aetna Casualty & Surety Co.’s Post-Trial

Brief and Exhibits to the United States Court of

Appeals for the Third Circuit (excerpts), in

Chemical Leaman Tank Lines, Inc. v. Aetna

Casualty & Surety Company, et al. (April 4, 1994)... A-399

xxi

Page

Transcript of Proceedings Before the Superior Court

of West Virginia (Oral Opinion) in Joy

Technologies v. Liberty Mut. Ins. Co., No. 88-C-96-

F COE S,, FPR icicnitasccsvestiioviicmntinencesncinitptiavasnanitc A-423

Insurer Aetna Casualty & Surety Co.’s Brief and

Exhibits in Support of Cross-Motion for Summary

Judgment in the United States District Court for the

District of New Jersey (excerpts), in Chemical

Leaman Tank Lines, Inc. v. Aetna Casualty &

Surety Company, et al. (October 9, 1992) ............0., A-436

No.

IN THE

Supreme Court of the United States

OCTOBER TERM, 1996

ROBIN ANTHONY GILDART JACKSON, an Underwriter

at Lloyd’s, London on behalf of himself and as a

representative of Certain Underwriters at Lloyd’s, London,

and Certain Subscribing London Market

Insurance Companies,

Petitioners,

VS.

CHEMICAL LEAMAN TANK LINES, INC.,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE THIRD CIRCUIT

PETITION FOR WRIT OF CERTIORARI

Petitioners, Robin Anthony Gildart Jackson, an Under-

writer at Lloyd’s, London on behalf of himself and as repre-

sentative of Certain Underwriters at Lloyd’s, London, and

Certain Subscribing London Market Insurance Companies,

designated as “London Market Insurers,” respectfully pray

that a Writ of Certiorari issue to review the decision of the

United States Court of Appeals for the Third Circuit in this

case.

OPINIONS BELOW

The initial opinion of the Court of Appeals (A-75 to A-133)

was reported at 68 F.3d 658. The order of the Court of Ap-

peals vacating its initial opinion and granting panel rehearing

is reported at 68 F.3d 685. (A-74). The second opinion of the

Court of Appeals on rehearing is reported at 89 F.3d 976. (A-

4 to A-73) The District Court’s opinions granting partial

summary judgment are reported at 788 F. Supp. 846 (A-234

to A-250) and 817 F. Supp. 1136 (A-174 to A-233). The Dis-

trict Court’s judgment order, rendered on April 7, 1993 (A-

155 to A-157), is unreported.

JURISDICTIONAL STATEMENT

The Court of Appeals issued its ruling on rehearing on June

20, 1996. London Market Insurers timely filed a petition for

rehearing en banc, which was denied on July 22, 1996. The

jurisdiction of this Court is invoked under 28 U.S.C. § 1254

(1).

CONSTITUTIONAL & STATUTORY

PROVISIONS INVOLVED

The Fifth Amendment, U.S. Constitution, provides in per-

tinent part that: “no person shall .... be deprived of life, lib-

erty, or property without due process of law.”

Federal Rule of Civil Procedure 50(a) provides as follows:

(a) Judgment as a Matter of Law.

(1) If during a trial by jury a party has been fully

heard on an issue and there is no legally suffi-

cient evidentiary basis for a reasonable jury to

find for that party on that issue, the court may

determine the issue against that party and may

grant a motion for judgment as a matter of law

against that party with respect to a claim or de-

fense that cannot under the controlling law be

maintained or defeated without a favorable

finding on that issue.

3

(2) Motions for judgment as a matter of law may

be made at any time before submission of the

case to the jury. Such a motion shall specify

the judgment sought and the law and the facts

on which the moving party is entitled to the

judgment.

STATEMENT OF THE CASE

This appeal stems from a declaratory judgment action

brought by Chemical Leaman Tank Lines, Inc. (“Chemical

Leaman”) against Petitioners London Market Insurers, seek-

ing coverage under certain liability insurance policies to

which London Market Insurers severally subscribed for dam-

ages as a result of environmental pollution at Chemical Lea-

man’s tank truck terminal in Bridgeport, New Jersey.

A. FACTUAL BACKGROUND

Chemical Leaman is a tank truck company that specializes

in the transport of bulk chemicals and other liquids. It oper-

ates a number of terminals around the country, many of which

had tank cleaning facilities, including one in Bridgeport, New

Jersey. To avoid cross-contamination of customers’ products,

each tank truck, unless dedicated to carrying a particular

chemical product, must be cleaned after each delivery before

being refilled. In 1960, Chemical Leaman opened its Bridge-

port terminal to dispatch and clean tank trucks in a secluded

part of rural Gloucester County, New Jersey. The waste water

generated by the routine tank truck cleaning operation was

intentionally discharged into three unlined earthen ponds that

were interconnected by “tee pipes.” The last lagoon in the se-

ries had a discharge pipe into adjacent wetlands. (A-14).

In September 1961, an inspector from the New Jersey Di-

vision of Fish, Game and Wildlife complained to Chemical

Leaman that the waste discharges from the original ponds into

adjacent wetlands were unacceptable and that the resulting

pollution should be abated within one year. Chemical Leaman

responded by installing three additional unlined lagoons of

roughly similar size to receive waste water pumped from the

original series of unlined ponds. Again, the last lagoon in the

newly constructed series was designed with an outflow pipe

into the neighboring swamp. (A-14). In November 1968, wa-

ter pollution control officials of the New Jersey Department

of Health returned to the Bridgeport terminal and informed

Chemical Leaman that the wastes emanating from the lagoons

were “highly pollutional.” In February 1969, the state ordered

Chemical Leaman to undertake “immediate measures” to

eliminate the polluting discharges or implement an improved

waste treatment system. (A-14). In May 1969, Chemical

Leaman submitted a plan to improve its waste treatment sys-

tem, but the state regulators deemed it unsatisfactory. (A-14).

Although Chemical Leaman knew that the continuing waste

water discharges into the lagoon system presented problems

to state officials, it continued to use the lagoon system until

1975 when Chemical Leaman arranged with Du Pont to treat

wastes at a Du Pont facility. The ponds and lagoons remained

until 1977 when Chemical Leaman finally drained them, re-

moved the accumulated sludge and filled them with brickbat.

(A-15). During its operation, approximately 100 million gal-

lons of contaminated waste water were processed in the

Bridgeport terminal lagoon system. (A-70).

This attempted closure merely prolonged Chemical Lea-

man’s worsening environmental problems. In 1980, twenty

years after Chemical Leaman began intentionally discharging

contaminated waste water into the unlined lagoon system, a

routine survey by the New Jersey Department of Environ-

mental Protection (“NJDEP”) discovered ground water con-

tamination in the vicinity of Chemical Leaman’s Bridgeport

terminal. Further investigation determined that the primary

source of contamination were the former ponds and lagoons

on the Chemical Leaman property. (A-15). In 1984, the

United States Environmental Protection Agency (“USEPA”)

placed the Bridgeport terminal on the Superfund National

Priorities List. In 1985, several years before notifying its in-

surers, Chemical Leaman entered into a consent decree with

the USEPA in which it agreed to remediate the environmental

contamination at the Bridgeport terminal. (A-15). To date,

Chemical Leaman reportedly has incurred over $9 million in

5

connection with remediation efforts at the Br dgeport termi-

nal.

On April 18, 1988, Chemical Leaman gave notice of an

insurance claim regarding the environmental clean-up at the

Bridgeport facility to its primary liability insurance carrier,

Aetna Casualty & Surety Company (“Aetna”). (A-183). Ap-

proximately one year later on March 30, 1989, less than four-

teen days prior to commencing this action, Chemical Leaman

provided notice of the environmental insurance claim at the

Bridgeport terminal to Petitioners through Chemical Lea-

man’s Pennsylvania insurance broker, Stewart Smith East Inc.

(A-183). The instant action was filed on April 12, 1989, in the

United States District Court for the District of New Jersey.

(A-237). London Market Insurers answered the complaint,

denying the insurance claim on several grounds, including,

inter alia, that there was no “occurrence” as required by the

policies because Chemical Leaman expected or intended to

cause harm to the environment, and that the pollution exclu-

sion in several of the policies precluded coverage.

B. THE INSURANCE POLICIES

Chemical Leaman purchased comprehensive general liabil-

ity policies from Aetna covering successive years from April

1, 1960 through April 1, 1985. It also acquired excess liability

policies structured in various layers with differing limits of

liability over the same period. Most of these excess liability

insurance policies were subscribed to by London Market In-

surers. Various domestic insurers co-insured portions of cer-

tain excess policies, but Chemical Leaman elected not to

name them in this action.’ The insuring agreement in the

' The London Market is a subscription insurance market in which insurers

severally subscribe to insurance policies for a proportionate share of the

risk. Edinburgh Assur. Co. v. R.L. Burns Corp., 479 F. Supp. 138, 144-45

(C.D. Cal. 1979), aff'd in part and rev'd in part, 669 F.2d 1259 (9th Cir.

1982). Although the full collection of London Market insurance policies

issued to Chemical Leaman from 1959 to 1985 were produced during

discovery, Chemical Leaman elected to name only certain insurance

company subscribers to the London Market policies. During the pendency

(Footnote continued)

6

London Market policies states with minor variance that insur-

ance coverage is provided for:

all sums which the Assured shall be obligated to

pay by reason of the liability ... imposed upon the

Assured by law,...for damages... on account of: (i)

Personal Injuries... (ii) Property Damage... caused

by or arising out of each occurrence....

(A-188).

Under this insuring clause, to establish coverage an insured

must prove the existence of an “occurrence.” London Market

Insurers’ policies define “occurrence” to mean:

[a]n accident or a happening or event or a continu-

Ous or repeated exposure to conditions which unex-

pectedly and unintentionally results in personal

injury, [or] property damage...during the policy pe-

riod.

(A-188).

Each London Market policy in effect from 1971 onward

contains a pollution exclusion. From April 1, 1971 to April 1,

1974, and from April 1, 1977 to April 1, 1985, the London

Market policies contain the NMA 1685 (NMA referring to the

Non Marine Association) pollution exclusion, which excludes

coverage for personal injury, bodily injury or property dam-

age caused by seepage, pollution or contamination unless

“such seepage, pollution or contamination is caused by a sud-

den, unintended and unexpected happening during the period

of this insurance.” (A-189). At the request of Chemical

of the appeal, Chemical Leaman through its counsel of record confirmed

which insurance company subscribers to the London Market policies were

proper parties to the action before the District Court. The appeal before

the Court of Appeals and this Petition are made only on behalf of Certain

Underwriters at Lloyd’s, London and those insurance company subscrib-

ers which Chemical Leaman has identified as parties, which are set forth

in the Rule 29.6 Statement.

|

Leaman, the London Market policies in effect from April 1,

1974 through April 1, 1977, contain the standard ISO (ISO

referring to the Insurance Services Office) pollution exclusion

which precludes coverage for property damage arising out of

the discharge, dispersal, release or escape of contaminants or

pollutants, unless the “discharge, dispersal, release or escape

is sudden and accidental.” (A-187).

C. DISTRICT COURT PROCEEDINGS

On April 12, 1989, less than two weeks after giving notice

of claim to London Market Insurers, Chemical Leaman filed

its complaint in the United States District Court for the Dis-

trict of New Jersey against Aetna and London Market Insur-

ers. (A-237). Jurisdiction in the District Court was premised

on 28 U.S.C § 1332, diversity of citizenship. (A-237). The

complaint sought a declaration of insurance coverage under

certain liability policies issued by Aetna and London Market

Insurers.” (A-237).

Following extensive discovery, in October 1990, the parties

cross-moved for partial summary judgment on various issues,

including, inter alia, the relevant substantive law to be ap-

plied. The District Court held that New Jersey law governed

the policy interpretation issues. (A-244). In September 1992,

the parties again filed cross-motions for summary judgment

on a host of legal issues pertinent to this appeal. London Mar-

ket Insurers sought summary judgment against Chemical

Leaman on the ground that it had not carried its burden of

proving an “occurrence” as required by the insurance

policies, that is, Chemical Leaman “expected or intended”

* When the lawsuit began, Chemical Leaman sought insurance coverage

under insurance policies in effect from 1959 to 1986. On cross-motions

for summary judgment, the District Court ruled that there was no envi-

ronmental damage in the 1959 policy year. (A-200). Further, on two sepa-

rate occasions, respectively, prior to and during trial, Chemical Leaman

voluntarily dismissed the London Market policies in effect between April

1, 1985 and April 1, 1986, and then between April 1, 1981 and April 1,

1985. (A-19 n.4).

8

environmental damage at the Bridgeport terminal. (A-190).

Chemical Leaman crossed-moved, conversely claiming an

occurrence under the policies. The parties also disputed

whether the inquiry into Chemical Leaman’s intention or ex-

pectation ought to be subjective or objective. (A-194). New

Jersey jurisprudence at the time of motion practice required

an evaluation of the insured’s subjective intent to injure, un-

less “exceptional circumstances” objectively established the

insured’s intent to injure. See Voorhees v. Preferred Mut. Ins.

Co., 607 A.2d 1255, 1265 (N.J. 1992). On March 12, 1993,

three days prior to the scheduled trial, the District Court de-

cided the cross-motions for summary judgment. It held, as a

matter of law, that Chemical Leaman’s conduct at the Bridge-

port terminal did not constitute “exceptional circumstances”

and would be evaluated under a subjective intent standard.

(A-197). The Court then denied the cross-motions for sum-

mary judgment on whether Chemical Leaman subjectively

expected or intended environmental damage, concluding that

genuine issues of fact existed. (A-205).

London Market Insurers also sought partial summary

judgment based on the pollution exclusions in their policies.

The District Court refused to entertain Chemical Leaman’s

belated argument that the insurers’ alleged regulatory misrep-

resentations to state insurance officials should estop them

from advancing a more restrictive interpretation of the pollu-

tion exclusion. (A-216 n.16). The District Court found as a

matter of law that Chemical Leaman expected or intended

discharges of known pollutants into the lagoons, held that the

pollution exclusion precluded coverage as to soil damage at

the site, but denied partial summary judgment based on the

pollution exclusion with respect to ground water contamina-

tion and did not address contamination to the surrounding

wetlands. (A-218).

On March 15, 1993, the parties began a three week trial to

determine whether there was insurance coverage for damages

caused by Chemical Leaman’s polluting activities at the

Bridgeport terminal. At the close of Chemical Leaman’s case

in chief and later renewed at the close of all evidence, London

ae

9

Market Insurers moved for judgment as a matter of law pur-

suant to Rule 50(a) of the Federal Rules of Civil Procedure on

several grounds, including that evidence of “exceptional cir-

cumstances” had been sufficiently established so as to warrant

judgment as a matter of law for London Market Insurers. (A-

144). The Court denied London Market Insurers’ Rule 50(a)

motion and further held sua sponte as a matter of law that

“exceptional circumstances” did not exist. (A-148). London

Market Insurers then requested a jury instruction, asking the

jury to determine if “exceptional circumstances” existed. (A-

251). The District Court rejected London Market Insurers’

requested jury charge, thereby completely and finally remov-

ing the issue from the jury’s consideration. (A-260 to A-269).

The jury returned a special verdict on April 7, 1993, with

multiple fact findings, including one that Chemical Leaman

did not expect or intend to cause environmental damage at the

Bridgeport facility. (A-158 to A-173). The District Court

molded the judgment on the jury’s special verdict, reciting,

inter alia, that Chemical Leaman was entitled to indemnifica-

tion and reimbursement from the insurers under the insurance

policies in effect from April 1, 1960 to April 1, 1971, for

costs associated with investigating and remediating soil con-

tamination at and in the vicinity of the Bridgeport facility;

indemnification and reimbursement from the insurers under

the insurance policies in effect from April 1, 1960 to April 1,

1981, for costs associated with investigating and remediating

ground water contamination; and finally for indemnification

and reimbursement from the insurers under the insurance

policies in effect from April 1, 1961 to April 1, 1971, for

costs associated with investigating and remediating the wet-

lands damage. (A-155 to A-157).

London Market Insurers timely filed post-trial motions un-

der Rule 50(b) of the Federal Rules of Civil Procedure. The

District Court denied the Rule 50(b) motions. ( A-140). —

10

D. THIRD CIRCUIT PROCEEDINGS

London Market Insurers timely appealed the judgment to

the United States Court of Appeals for the Third Circuit.”

During the pendency of the appeal, the New Jersey Supreme

Court in Morton Int'l Inc. v. General Accident Ins. Co. of

Am., 629 A.2d 831 (N.J. 1993), cert. denied, 114 S.Ct. 2764

(1994) addressed the “expected or intended” aspect of the

“occurrence” clause in liability policies in the environmental

pollution context.” Morton recognized the unique circum-

stances surrounding insurance claims for environmental dam-

age and acknowledged the “impracticality of adherence to the

general rule that we look to the insured’s subjective intent to

determine intent to injure.” 629 A.2d at 879. After surveying

the prior New Jersey case law on the “expected or intended”

standard in insurance coverage cases, the Morton court man-

dated that an alternative “exceptional circumstances” ap-

proach must be applied in environmental insurance disputes

to objectively establish an insured’s expectation or intention.

629 A.2d at 880.° In its initial 50- -page Opinion dated October

* After oral argument before the Third Circuit, but prior to original Third

Circuit decision, Chemical Leaman and Aetna settled all claims between

themselves arising from this dispute.

* Morton was decided while London Market Insurers’ Rule 50(b) motions

were pending. London Market Insurers twice asked the District Court if it

desired supplemental briefing in light of Morton on the pending Rule

50(b) motions. The District Court never asked for supplemental briefing.

The District Court’s rulings on the Rule 50(b) motions do not mention

Morton. Nonetheless, the Court of Appeals was obligated to follow Mor-

ton even though it was decided after the trial below. Vandenbark v.

Owens-Illinois Glass Co., 311 U.S. 538, 543 (1941).

* Morton enunciated a multi-factor test to evaluate whether policyholders

expected or intended environmental damage:

Instead, we hold that in environmental-coverage litigation a

case-by-case analysis is required in order to determine

whether, in the context of all the available evidence,

“exceptional circumstances” [exist] that objectively establish

the insured’s intent to injure.” Those circumstances include

the duration of the discharges, whether the discharges oc-

(Footnote continued)

11

12, 1995, the Third Circuit relied upon the alternative

“exceptional circumstances” test in Morton in reversing the

District Court judgment and in entering judgment as a matter

of law in favor of London Market Insurers on those insurance

policies incepting after 1968. The Third Circuit’s initial deci-

sion carefully reviewed the trial record and held that the evi-

dence compelled the conclusion that “exceptional

circumstances” existed as matter of law after 1968, eliminat-

ing insurance coverage. (A-117 to A-118). The Third Cir-

cuit’s initial decision, later withdrawn, remanded the matter

for retrial on the insurance policies in effect before 1968. The

initial opinion by the Court of Appeals did not address the

pollution exclusion in light of its holding that no coverage

existed on occurrence grounds for the policies incepting after

1968.

Chemical Leaman, thereafter, filed a timely petition for re-

hearing and suggestion for rehearing en banc. The Third Cir-

cuit granted panel rehearing and vacated its original decision.

(A-74). On June 20, 1996, a reconstituted majority panel of

the Court of Appeals changed course, affirmed the District

Court’s rulings in part, and remanded the case for a realloca-

tion of damages among applicable policies in accordance with

Owens-Illinois, Inc. v. United Ins. Co., 650 A.2d 974 (N.J.

1994). (A-44).

In its ruling on rehearing, the Court of Appeals committed

two fundamental errors which warrant review by this Court.

First, the circuit court departed from the established standard

of review of rulings under Federal Rule of Civil Procedure

50(a) when it concluded that the critical issues of fact

curred intentionally, negligently, or innocently, the quality of

the insured’s knowledge concerning the harmful propensities

of the pollutants, whether regulatory authorities attempted to

discourage or prevent the insured’s conduct, and the existence

of subjective knowledge concerning the possibility or likeli-

hood of harm.

629 A.2d at 880 (citations omitted).

12

surrounding Chemical Leaman’s expectation or intention to

injure -- applying Morton’s “exceptional circumstances” test

-- could be removed from the jury’s consideration “if a rea-

sonable jury could find” evidence of the lack of exceptional

circumstances.

Secondly, the Court of Appeals addressed for the first time

on appeal the issue of regulatory estoppel to preclude en-

forcement of the plain meaning of the pollution exclusion in

the London Market policies. The issue of regulatory estoppel

in the context of the pollution exclusion clause had its genesis

in Morton. There, addressing the issue for the first time on

appeal without an evidentiary hearing on any factual issue, the

Morton court found that the Insurance Rating Board (“IRB”),

as a representative of certain insurance carriers, had misled

the New Jersey state regulators about the effect of the stan-

dard ISO pollution exclusion when the IRB secured regula-

tory approval for the exclusion.° 629 A.2d at 847, 874. Asa

result of the alleged misrepresentations, the insurers were es-

topped from enforcing what Morton conceded to be the plain

meaning of the word “sudden” in the standard ISO pollution

exclusion, which would have barred insurance coverage for

pollution damage from gradual, non-sudden pollution dis-

charges. 629 A.2d at 847. Mimicking the unconstitutional er-

ror in Morton, for the first time on appeal, the Third Circuit

extended the Morton estoppel ruling to the pollution exclu-

sions found in the London Market policies without affording

° Morton rebuffed the insurers’ request for an evidentiary hearing, observ-

ing, inter alia:

Although the insurers urge that we not consider the regulatory

history of the standard clause without a fuller record, we are

persuaded that a remand would be redundant, and this record

together with the reported cases that address the regulatory

history and the abundant independent commentary on the

subject affords an accurate and comprehensive basis for our

determination.

629 A.2d at 848.

13

London Market Insurers a prior factual hearing on the neces-

sarily fact-bound issue of regulatory estoppel.

London Market Insurers timely sought rehearing en banc.

The Court of Appeals denied rehearing en banc on July 22,

1996.

Principles of fundamental fairness as well as constitutional

protections dictate that this Court grant review to remedy such

grave injustice.

REASONS FOR GRANTING THE WRIT

I. THE COURT OF APPEALS APPLIED

THE WRONG LEGAL STANDARD TO

REVIEW THE DISTRICT COURT’S DE-

TERMINATION AS A MATTER OF LAW

ON A CRITICAL ELEMENT REQUIRED

BY THE CONTROLLING STATE LAW

IN THIS DIVERSITY ACTION, THEREBY

REMOVING GENUINE FACT ISSUES

FROM THE JURY’S CONSIDERATION.

In upholding the District Court’s at-law determination of

the absence of “exceptional circumstances” as defined by

Morton, the Third Circuit abandoned the traditional standard

of judicial review, as established by this Court, over lower

” The importance of these issues is demonstrated by the amicus curiae

filings by the Attorney General of the State of New Jersey. After the Court

of Appeals vacated its initial decision, the Attorney General filed an ami-

cus curiae brief in support of Chemical Leaman. (A-290 to A-299). The

Attomey General argued that unless the Third Circuit reversed its decision

on the “expected or intended” standard, the State of New Jersey would be

irreparably harmed, as numerous hazardous waste sites would not be

remediated. The Attorney General’s public policy arguments, however,

were not then and are not now a legitimate basis to nullify clear contract

wording. See State of New Jersey v. Signo Trading Int'l Inc., 612 A.2d

932, 940 (N.J. 1992) (“[PJublic policy considerations alone are not suffi-

cient to permit a finding of coverage in an insurance contract when its

plain language cannot fairly be read otherwise to provide that coverage.”)

14

court determinations under Rule 50(a).° This appeal raises

serious questions about the proper application of the Federal

Rules of Civil Procedure. Since this Court has supervisory

responsibility over the federal judiciary, it is obligated to

provide lower courts with guidance when there is a prejudicial

departure from the customary application of the Federal Rules

of Civil Procedure. London Market Insurers respectfully re-

quest that this Court exercise its discretionary authority pur-

suant to Supreme Court Rule 10(a) and grant certiorari to

rectify an erroneous application of the Federal Rules of Civil

Procedure.

A. The Court Must Grant Review To Con-

strain The Court of Appeals To Apply The

Correct Standard Of Judicial Review For

Removing Essential Fact Issues From The

Factfinder’s Consideration.

In Brady v. Southern Railroad, 320 U.S. 476 (1943), this

Court articulated the judicial standard of review for when a

court may remove essential fact issues from the jury’s consid-

eration:

When the evidence is such that without weighing

the credibility of the witnesses there can be but one

reasonable conclusion as to the verdict, the court

should determine the proceeding by non-suit, di-

rected verdict or otherwise in accordance with the

applicable practice without submission to the jury,

or by judgment notwithstanding the verdict.

* The District Court twice decided as a matter of law that “exceptional

circumstances” were absent, first on cross-motions for summary judgment

under Rule 56, and second during trial on London Market Insurers’ Rule

50(a) motion. (A-148). Since the insurers’ Rule 50(a) motion was the final

opportunity for the District Court to address the “exceptional circum-

stances” issue before the jury received the case, this Petition focuses upon

the standard of judicial review of the District Court’s Rule 50(a) ruling.

However, there is no legal difference between the standard of judicial

review for at-law determinations under Rule 56 or Rule 50(a), which de-

prive a party of a jury-fact determination.

15

Id. at 479-80 (emphasis added). On numerous occasions, this

Court has echoed the familiar principle that where reasonable

factfinders could disagree on essential fact issues, the fact

question is not for the court, but must be submitted to the

jury. E.g., McDermott Int'l Inc. v. Wilander, 498 U.S. 337,

356 (1991); Anderson v. Liberty Lobby, Inc., 477 U.S. 242,

250-52 (1986). Simply, a court may not, after reviewing the

evidence, remove the case from the jury “because it might

believe that the jury could reasonably find for the nonmoving

party.” Lytle v. Household Mfg., Inc., 494 U.S. 545, 555

(1990) (emphasis in original).

Disregarding established standards of judicial review, the

reformulated majority panel of the Court of Appeals on re-

hearing concluded that the District Court properly entered

judgment as a matter of law that “exceptional circumstances”

as postulated by Morton were absent because “a reasonable

jury could find” evidence of the lack of “exceptional circum-

stances.” The Court of Appeals plainly erred. The Third Cir-

cuit on rehearing engaged in precisely what this Court

expressly forbade lower courts to do, that is, sanction the

deprivation of genuine fact issues from the factfinder because

the court believes that a jury could reasonably find in favor of

the nonmoving party on the point.

The Third Circuit on rehearing twice misstated the standard

of review:

We believe a reasonable jury could find Chemical

Leaman did not engage in a “pattern of stonewall-

ing.” On the contrary, a jury could conclude that

Chemical Leaman’s behavior suggests a good faith

effort at compliance with agency demands.

(A-32) (emphasis added.) Rather, the standard of review

which the Third Circuit invoked is reserved for those situa-

tions in which the appealing party is challenging a fact de-

termination submitted to the factfinder. See Senko v. La

Crosse Dredging Corp., 352 U.S. 370, 374 (1957); Dick v.

New York Life Ins. Co., 359 U.S. 437, 444-47 (1959). The

standard of judicial review invoked here is clearly inapposite

16

in situations where factual issues are removed from the jury’s

consideration and decided by the court as a matter of law.

Conspicuously absent from the Court of Appeals’ opinion on

rehearing is a determination that the only reasonable conclu-

sion which a reasonable jury could reach is that “exceptional

circumstances” did not exist.’ In fact, an examination of the

trial evidence as recounted in the Court of Appeals’ initial

majority opinion and later dissenting opinion on rehearing

compels the conclusion that a jury could indeed find

“exceptional circumstances.” 2g Therefore, it should have been

impossible for the Court of Appeals to reach its erroneous

” In a footnote to the majority opinion on rehearing, the Court of Appeals

acknowledged the contours of the proper standard of review, which it then

did not apply:

We believe that Morton did not displace the usual relationship

between the court and the jury. It remains the unique province

of the jury to resolve disputed issues of fact - such as the in-

tentions or expectations of the insured. Only in cases where

there is no legally sufficient evidentiary basis for a reasonable

jury to find for a party may the court enter judgment as a

matter of law. Morton refines the test for when a court may

enter judgment as a matter of law in environmental pollution

cases. Its “exceptional circumstances” define when no reason-

able jury could find the insured did not intend or expect to

cause property damage because objective circumstances--

evidence of prolonged, intentional, or flagrant discharges of

known pollutants in the face of regulatory disapproval--

establish that the insured must have intended property dam-

age.

(A-31 n.7). There is a polar difference between the footnote phrase “when

no reasonable jury could find” and the textual phrase “a reasonable jury

could find.” London Market Insurers are not complaining about a seman-

tic distinction, but request relief from the application of a clearly errone-

ous standard of review. Certiorari review by this Court is warranted to

correct this fundamental error.

° The differing conclusions drawn from the same trial evidence found in

the initial majority opinion and the dissenting opinion on rehearing amply

illustrate that reasonable persons could differ on the inferences to be

drawn on the evidence going to the Morton factors of “exceptional cir-

cumstances.”

17

conclusion on rehearing if it had followed established prece-

dent. Even if the Court of Appeals was disinclined to grant

judgment as a matter of law to London Market Insurers on the

ground that “exceptional circumstances” existed, at the very

least, the Third Circuit was duty bound to reverse the judg-

ment and remand the matter to the District Court for a new

trial.

Besides the prejudicial impact upon the contract rights of

London Market Insurers, the clear departure by the Court of

Appeals from established precedent offends the public policy

goals underpinning Morton. There, the New Jersey Supreme

Court articulated the “exceptional circumstances” test as an

objective alternative to the subjective intent standard because

“absent ‘smoking gun’ testimony from a disgruntled em-

ployee, proof of subjective intent to cause environmental

harm will rarely be available in coverage litigation.” Morton,

629 A.2d at 879. Morton thus formulated an alternative legal

test to level the playing field between insureds and insurers in

coverage litigation. The Court of Appeals’ opinion on rehear-

ing, absent relief from this Court, sanctions the removal of the

alternative “exceptional circumstances” test from the fact-

finder’s consideration where the trial judge “could find” that

any one of the exceptional circumstance factors is missing.

Such a result runs afoul of the coverage interpretation goals of

Morton. Furthermore, the Court of Appeals decision will be

used wrongfully to compel insurers to reimburse a policy-

holder for its “expected or intended” pollution damages as

well as serve as precedent to authorize lower courts to remove

genuine fact issues from a jury’s consideration. Also, this

Court should grant this Petition to obviate the District Courts

applying Morton incorrectly and, thereby, prompting numer-

ous unnecessary appeals.’

"' The negative impact in the pollution context is already evident. In J.T.

Baker v. Aetna Casualty & Surety Co., 1996 U.S. Dist. LEXIS 11600

(D.N.J. Aug. 5, 1996), the New Jersey District Court found in the context

of determining the proper standard to be applied to determine Baker’s

intent that the “law in this area was recently clarified by the Third Circuit

(Footnote continued)

18

Il. APPLICATION OF REGULATORY ES-

TOPPEL BY THE COURT OF APPEALS

FOR THE FIRST TIME ON APPEAL TO

PRECLUDE ENFORCEMENT OF THE

PLAIN, TEMPORAL MEANING OF THE

POLLUTION EXCLUSION WITHOUT

AN EVIDENTIARY HEARING TO ES-

TABLISH THE FACTUAL ELEMENTS

FOR ESTOPPEL DENIED PETITIONER

INSURERS THEIR DUE PROCESS

RIGHTS AS GUARANTEED BY THE

FIFTH AMENDMENT.

Relying on Morton’s reformation of the standard ISO pol-

lution exclusion because of alleged regulatory misrepresenta-

tions by certain insurer representatives, the Court of Appeals

held that London Market Insurers were estopped from enforc-

ing the plain meaning of the pollution exclusions found in

their policies. (A-37). While the theory of regulatory estoppel

was known to Chemical Leaman before trial, it elected not to

pursue it. (A-216 n.16). The estoppel theory became signifi-

cant for the first time on appeal to the Court of Appeals. The

application of the Morton . estoppel doctrine without an

in Chemical Leaman Ill, which clearly held that the test is a subjective

one.” /d. at *33.

The fact that this Court denied the insurers’ Petition For Writ Of Certio-

rari in Morton is immaterial to the current Petition. As this Court has re-

marked, “[t]he denial of a writ of certiorari imports no expression upon

the merits of the case, as the bar has been told many times.” United States

v. Carver, 260 U.S. 482, 490 (1923); accord Sunal v. Large, 332 U.S.

174, 181 (1947); House v. Mayo, 324 U.S. 42, 48 (1945); Atlantic Coast

Line R. Co. v. Powe, 283 U.S. 401, 403 (1931). Moreover, in Morton, the

insurance carriers were the prevailing parties. Frequently, this Court has

refused to consider an appeal by a party who was successful on the merits

below. See Public Serv. Comm'n v. Brashear Freight Lines Inc., 306 U.S.

204, 206 (1939); Deposit Guar. Nat'l Bank etc. v. Roper, 445 U.S. 326,

333 (1980). In contrast, the present matter is ripe for review by this Court.

19

evidentiary hearing unconstitutionally deprived London Mar-

ket Insurers of their contractual property rights.

The Due Process Clause of the Fifth Amendment requires

some forri of hearing before an individual is finally deprived

of a property interest. As this Court explained in Joint Anti-

Fascist Refugee Comm. v. McGrath, 341 U.S. 123, 168

(1951), the

right to be heard before being condemned to suffer

grievous loss of any kind, even though it may not

involve the stigma and hardships of a criminal con-

viction, is a principle basic to our society.

Accord Matthews v. Eldridge, 424 U.S. 319, 333 (1976);

Wolff v. McDonnell, 418 U.S. 539, 557-58 (1974). Over the

constitutional objections of London Market Insurers below,

the Court of Appeals ignored the constitutional guarantees of

the Fifth Amendment and extended Morton’s regulatory es-

toppel ruling to the pollution exclusions in the London Mar-

ket policies without an evidentiary hearing on the contested

factual predicates upon which the regulatory estoppel ruling is

based. (A-340 to A-342).

By necessity, extension of Morton’s estoppel rule to Lon-

don Market Insurers on appeal required the Court of Appeals

to engage in appellate de novo fact-finding. The Court of Ap-

peals relied upon fragmentary and unverified factual asser-

tions which could not be challenged through cross-

examination at a duly constituted evidentiary hearing. Besides

violating London Market Insurers’ constitutional due process

guarantees, the Court of Appeals unfairly rewarded Chemical

Leaman’s deliberate decision not to pursue the regulatory es-

toppel theory at trial. Fundamental fairness is the polestar of

due process. This basic principle of equity was ignored by the

"’ Contract rights such as those denied below have long been recognized

as property interests warranting protection under the Fifth Amendment.

See United States Trust Co. v. New Jersey, 431 U.S. 1, 19 n.16 (1977);

Lynch v. United States, 292 U.S. 571, 578-79 (1934).

20

Court of Appeals. Fundamental fairness should have

prompted the Court of Appeals to fault Chemical Leaman for

its deliberate refusal to present the estoppel theory at trial and

expose it to challenge. Instead, the Court of Appeals chose to

penalize London Market Insurers, deprive petitioners of their

fundamental right to an evidentiary hearing before their con-

tract rights were denied, and bestow a windfall upon Chemi-

cal Leaman. This Court should demonstrate its tradition of

zealously protecting due process rights, Greene v. McElroy,

360 U.S. 474, 497 (1959), and grant this Petition.

A. An _ Evidentiary Hearing Would Have

Shown That Chemical Leaman Could Not

Sustain Its Burden To Establish The Re-

quirements of Estoppel.

To establish equitable estoppel under New Jersey law, the

party asserting estoppel, or Chemical Leaman here, has the

burden to prove:

Conduct amounting to a misrepresentation or con-

cealment of material facts known to the party alleg-

edly estopped and unknown to the party claiming

estoppel, done with the intention or expectation that

it will be acted upon by the other party and on

which the other party does in fact rely in such a

manner as to change his position for the worse gives

rise to an equitable estoppel.

Carlsen v. Masters, Mates & Pilots Pension Plan Trust, 403

A.2d 880, 882-83 (N.J. 1979); accord Horsemen's Benevolent

& Protective Ass'n v. Atlantic City Racing Ass'n, 487 A.2d

707, 712-13 (N.J. 1985); Miller v. Miller, 478 A.2d 351, 355

(N.J. 1984).

Simply stated, in order to establish the claim of estoppel

against London Market Insurers, Chemical Leaman was re-

quired to demonstrate that (1) London Market Insurers sub-

mitted misleading filings before the New Jersey insurance

regulators on the pollution exclusion; (2) Chemical Leaman

was unaware of the purported limitation in coverage presented

21

by the pollution exclusion; (3) London Market Insurers in-

tended that Chemical Leaman rely upon the misrepresenta-

tions; (4) Chemical Leaman reasonably relied upon the

purported misrepresentations; and (5) Chemical Leaman suf-

fered a detriment as a result. London Market Insurers chal-

lenged each of the necessary factual predicates for estoppel

before the Court of Appeals and urged an evidentiary hearing

prior to resolving the contested factual assertions.

If an evidentiary hearing was allowed, London Market In-

surers would have successfully challenged the claim of estop-

pel. In fact, Chemical Leaman’s conscious decision not to

pursue the estoppel theory at trial speaks volumes about its

chance of success.

As the Court of Appeals was informed, London Market In-

surers were never members of the IRB, which was the alleged

source of the regulatory misrepresentations about the effect of

the pollution exclusion clause to the New Jersey regulators.

(A-336 and A-361). Next, the extension of Morton’s regula-

tory estoppel holding to the London Market policies at issue

defied common sense because these policies were placed by

Chemical Leaman’s Pennsylvania insurance brokers in accor-

dance with the Pennsylvania insurance statutory scheme gov-

erning surplus lines insurance. (A-335 and A-348 to A-351).

Moreover, the result in Morton was brought about by an al-

legedly deceptive explanation of the standard ISO pollution

exclusion. Since Chemical Leaman requested inclusion of

the “sudden and accidental” pollution exclusion in the Lon-

don Market policies, it is illogical to extend the Morton es-

toppel rule to wording which the insured sought. (A-333). As

surplus lines insurers, acting in an unregulated and unlicensed

capacity in both New Jersey or Pennsylvania, the London

Market Insurers did not submit, nor were they required to

'* Morton expressly exempted non-standard pollution exclusions from its

holding. 629 A.2d at 847. Except for the London Market policies between

1974 and 1977, the other post-1971 London Market policies had the “non-

standard” NMA 1685 pollution exclusion. A fortiori, Morton's regulatory

estoppel holding does not apply to the NMA 1685 pollution exclusion.

22

submit, any explanation of the NMA 1685 non-standard pol-

lution exclusion to the New Jersey or Pennsylvania insurance

regulators.’ (A-336). There was no proof whatsoever that

London Market Insurers had made any alleged misrepresen-

tations to any state insurance regulator or that London Market

Insurers as surplus lines insurers had any obligation to say

anything. Further, any argument that Chemical Leaman was

entitled to an reduction in insurance premiums with the ad-

vent of the pollution exclusion in 1971 is nonsensical in light

of the fixed three-year insurance premium which Chemical

Leaman paid between 1968 and 1971 for the excess coverages

and Chemical Leaman’s growth in revenue and assets in the

same three years. (A-370 to A-378). Finally, Chemical Lea-

man fully understood the limitation in coverage presented by

the pollution exclusions in the London Market policies.

Chemical Leaman’s Pennsylvania insurance broker testified

on deposition that the word “sudden” in the pollution exclu-

sion had a temporal limitation. (A-461).

'S Elsewhere, London Market Insurers have successfully contended that

Morton is not applicable to the non-standard NMA 1685 pollution exclu-

sion. In Joy Technologies Inc. v. Liberty Mut. Ins. Co., 421 S.E.2d 493,

498-99 (W. Va. 1992), the West Virginia Supreme Court held that based

on alleged regulatory representations, the “sudden and accidental” pollu-

tion exclusion was limited to barring coverage only for pollution damage

which was intended or expected. However, on remand, the West Virginia

state court in Joy Technologies, Inc. v. Liberty Mut. Ins. Co., No. 88-C-96-

F, Hearing Tr. at 13-14 (W. Va. Circuit Ct., Oct. 5, 1993), rejected the

policyholder’s argument that all carriers, including London Market Insur-

ers, should be bound by the same estoppel holding. The court recited:

“However, as a matter of fairness and due process, that principle, that es-

toppel, in my opinion, is not applicable to the London Market and other

companies in this case who did not make such appearances, who were not

represented by any associations, who were not connected in any way to

any of the companies that were before the Insurance Commissioner during

that time.” (A-431). The court granted summary judgment to London

Market Insurers, construing the word “sudden” in the pollution exclusion

according to its plain, temporal meaning. /d. at 16 (A-432). The same re-

sult was required in the case sub judice.

23

Succinctly stated, if London Market Insurers were not de-

nied their due process rights as guaranteed by the Fifth

Amendment, the windfall bestowed upon Chemical Leaman

would have been avoided.

CONCLUSION

London Market Insurers respectfully request that this Peti-

tion for a Writ Of Certiorari be granted to ensure that the in-

tegrity of the Federal Rules of Civil Procedure are upheld and

that the principles of procedural due process enshrined in the

Fifth Amendment are protected.

Dated: October 19, 1996

Respectfully submitted,

WILLIAM S. WACHENFELD

Counsel of Record

JOHN G. McANDREWS

HENRY LEE

OLYMPIA DASKALAKIS

MENDES & MOUNT, LLP

750 Seventh Avenue

New York, New York 10019

(212) 261-8000

Attorneys for Petitioners

Robin Anthony Gildart Jackson,

an Underwriter at Lloyd's,

London, et al.

aie