(Fuse)

An excess insurance carrier involved in a multimillion-dollar settlement stemming from a 1998 Montgomery County service station gasoline leak has a duty to defend a pipe manufacturer involved in the settlement on subsequent cross-claims, the state Superior Court has ruled.

On March 5, a three-judge Superior Court panel ruled that the excess carrier, National Union Fire Insurance Co. of Pittsburgh, has a duty to defend Titeflex Corp. The decision in Titeflex v. National Union Fire Insurance Co. of Pittsburgh affirmed a 2012 Philadelphia Court of Common Pleas order.

Despite the carrier arguing that the trial court lost jurisdiction over the case because it allowed the service station owner, Thomas F. Wagner, a necessary party to the suit, to leave the litigation, Senior Judge Eugene B. Strassburger III said the trial court had maintained jurisdiction and appropriately ruled on the matter.

“Our review of the case law reveals no case with facts analogous to those here, where all proper parties were joined at the time the litigation was commenced, but one party finds it too burdensome to participate in a portion of the declaratory judgment action—the duty to defend—in which it alleged it has no interest,” Strassburger said. “However, based on our Supreme Court’s interpretation of Vale [Chemical v. Hartford Accident & Indemnification] in J.H. France [Refractories v. Allstate Insurance], we conclude that the temporary absence of Wagner until the duty to defend issue is resolved does not deprive the trial court of jurisdiction, as NUFIC contends.”

According to Strassburger, Titeflex manufactured a flexible connector that was installed and used at a gas station that Wagner owned and operated. In the spring of 1998, gasoline began to leak from the gas station and onto neighboring properties, Strassburger said. The neighbors sued Wagner, Titeflex and several other manufacturers and installers, and Wagner filed cross-claims against Titeflex.

According to Strassburger, Titeflex’s primary insurer from August 1997 through August 1998 was Kemper, which provided a policy with a $1 million limit per occurrence and a $2 million aggregate limit. National Union Fire Insurance provided the excess coverage, which included a $50 million umbrella per occurrence and an aggregate limit of $100 million.

Kemper initially provided Titeflex’s defense, Strassburger said; however, Kemper had financial problems, so Titeflex subsequently took over its own defense.

As part of a settlement in 2007, Kemper and Titeflex paid $1 million and National Union paid $9 million under its umbrella policies. Wagner had not been part of the settlement.

In March 2007, Titeflex filed a complaint seeking a declaratory judgment against National Union and Wagner. The amended complaint alleged breach of contract and bad faith against National Union, and asserted that National Union had a duty to defend against Wagner’s case.

In 2010, Wagner was dismissed from the underlying case; however, his cross-claims remained pending.

After National Union filed claims contending that Kemper had not exhausted its policies and that Titeflex breached its contract and fiduciary duty, the trial court ruled that Titeflex demonstrated that Kemper exhausted its policies and that National Union had a duty to defend Titeflex in the remaining portions of the actions.

On appeal, National Union contended that under 42 Pa.C.S. 7540(a) and the Supreme Court’s 1986 decision in Vale, the trial court’s decision allowing Wagner out of the case deprived it of subject-matter jurisdiction, and, therefore, its order should be vacated. National Union further contended that the court should not have applied Pennsylvania’s “cause” approach to determining how to allocate the losses spanning multiple years, but instead should have used New York’s “unfortunate event” approach.

National Union’s arguments, however, did not convince Strassburger.

Strassburger cited Wagner’s brief to the trial court stating the station owner would have to expend “substantial” resources to be fully involved in a litigation “in which it has no real cognizable legal interest beyond a jurisdictional prerequisite of the real parties in interest.”

Citing the trial court’s reasoning that Wagner did not need to participate in the indemnification portion of the litigation, Strassburger said the “statute simply requires that an interested party be made a party to the declaratory judgment action, not that it remain a party at all times.”

The disparity between the New York and Pennsylvania approaches also created a false conflict, Strassburger said.

National Union had argued that the court should have considered the approach outlined in the New York State Supreme Court’s 2002 decision in Consolidated Edison of New York v. Allstate Insurance, in which it held that insurance coverage should be prorated among the insurers in situations where there is a continuous harm spanning many years, as opposed to the approach that the state Supreme Court outlined in J.H. France, which said that an insured can recover its full policy from an insurer.

Strassburger, however, said that because J.H. France only applied to toxic tort cases, the outcome would have been the same.

“Because the instant case does not concern a toxic tort, but instead emanates from injuries alleged to have occurred as a result of one specific event, a gasoline leak, we conclude that NUFIC’s argument is without merit,” he said.

Titeflex’s attorney, Robert N. Feltoon of Conrad O’Brien, and National Union’s lawyer, Richard A. Ifft of Wiley Rein in Washington, D.C., did not return calls for comment.

Max Mitchell can be contacted at 215-557-2354 or mmitchell@alm.com. Follow him on Twitter @MMitchellTLI.

(Copies of the 24-page opinion in Titeflex v. National Union Fire Insurance Co. of Pittsburgh, PICS No. 14-0373, are available from Pennsylvania Law Weekly. Please call the Pennsylvania Instant Case Service at 800-276-PICS to order or for information.) •