J.D. Eckman v. Starr Indem. & Liab. Co.

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J.D. ECKMAN, INC. v. STARR INDEMNITY & LIABILITY COMPANY

Civil Action No. 23-1361

United States District Court, E.D. Pennsylvania

August 31, 2023

MEMORANDUM

BARTLE, J.

Plaintiff J.D. Eckman, Inc., a highway construction company, seeks a declaratory judgment against one of its insurers, defendant Starr Indemnity & Liability Company. Plaintiff asks the court to declare that defendant's second-layer excess insurance policy provides for $4 million of liability coverage per construction project, without limit to the number of projects, during the policy period. Defendant however, maintains that the policy has an aggregate $4 million limit regardless of the number of projects. Before the court is the motion of the defendant to dismiss plaintiff's complaint for failure to state a claim under Rule 12(b)(6) of the Federal Rules of Civil Procedure.

I

When reviewing a motion to dismiss under Rule 12(b)(6), the court “accept[s] as true all allegations in plaintiff's complaint as well as all reasonable inferences that can be drawn from them, and [the court] construes them in a light most favorable to the non-movant.” Tatis v Allied Interstate, LLC, 882 F.3d 422, 426 (3d Cir. 2018) (quoting Sheridan v. NGK Metals Corp., 609 F.3d 239, 262 n. 27 (3d Cir. 2010)).

The court is generally limited to allegations set forth in the pleadings. See Pennsylvania ex rel. Zimmerman v. PepsiCo, Inc., 836 F.2d 173, 181 (3d Cir. 1988). Our Court of Appeals explained that it is proper to consider “matters incorporated by reference or integral to the claim, items subject to judicial notice, matters of public record, orders, [and] items appearing in the record of the case.” Buck v. Hampton Twp. Sch. Dist., 452 F.3d 256, 260 (3d Cir. 2006) (citing 5B Charles Allen Wright & Arthur R. Miller, Federal Practice and Procedure § 1357 (3d ed. 2004)); Pension Benefit Guar. Corp. v. White Consol. Indus., Inc., 998 F.2d 1192, 1196 (3d Cir. 1993) (citing 5A Charles Allen Wright & Arthur R. Miller, Federal Practice and Procedure § 1357 (2d ed. 1990)). Thus, the court may consider the terms of relevant insurance policies.

II

Plaintiff purchased four commercial general liability policies--one primary policy and three excess policies--for the policy period of January 1, 2018 through January 1, 2019.

These policies include per occurrence limits which cap the coverage provided for a single case or incident. They also include aggregate limits which cap the total coverage an insurer will provide during the policy period. What these aggregate limits are is the focus of the pending motion.

According to the complaint, plaintiff faces eight lawsuits related to a July 2018 vehicle accident at its I-83 highway construction project in Dauphin County, Pennsylvania. There were three fatalities as well as other injuries. Plaintiff is also the defendant in two cases involving its I-78 project in Berks County, Pennsylvania where two individuals were killed and two were injured, also in July 2018. Defendant, in response to plaintiff's request for coverage, stated that there is a limit of $4 million in total for all these claims.

Arch Insurance Company (“Arch”) issued plaintiff's primary insurance policy. The policy contains a $1 million occurrence limit and a $2 million aggregate limit per construction project without any limit to the number of projects during the policy period. The policy states that “a separate Designated Construction Project General Aggregate Limit applies to each designated construction project, and that limit is equal to the amount of the General Aggregate Limit shown in the Declarations.” Furthermore, the policy makes clear that payments made for a designated construction project “shall not reduce the General Aggregate Limit ....” Thus, for example, if there were four projects where accidents occurred during the policy period, Arch would provide an aggregate of $2 million of coverage per project for a maximum coverage of $8 million.

Plaintiff's first-layer excess policy, issued by Great American Assurance Company (“Great American”), provides a $1 million occurrence limit and a matching $1 million aggregate limit once plaintiff's underlying policy has been exhausted. Plaintiff argues that this policy provides an aggregate of $1 million of coverage per project during the policy period regardless of the number of projects.

Defendant issued plaintiff's second-layer excess policy which provides coverage once the underlying Arch and Great American policies are exhausted. The policy includes a $4 million per occurrence limit as well as a $4 million aggregate limit. The parties, as noted above, dispute whether the aggregate limit is all that will be paid regardless of the number of projects during the policy period or whether the $4 million aggregate applies to each project during the policy period.^[1]

III

The court turns to the language of the policy issued by defendant. Its coverage limitations are described in Item 4 on the declarations page:

The Limits of Insurance, subject to all the terms of this Policy, are:

A. $4,000,000 Each Occurrence

B. $4,000,000 Other Aggregate(s) Where Applicable ....

Section I.A. of the policy includes a following form endorsement:

We will pay on behalf of the Insured, the “Ultimate Net Loss” in excess of the “underlying Insurance” as shown in Item 5. of the Declarations that the Insured becomes legally obligated to pay for loss or damage to which this insurance applies and that takes place in the Coverage Territory. Except for the terms, definitions, exclusions or limitations of this Policy, the coverage provided by this Policy shall follow the terms, definitions, conditions and exclusions of the applicable First Underlying Insurance Policy(ies) shown in Item 5.A. of the Declarations.

As such, defendant's policy incorporates the “terms, definitions, conditions and exclusions” included in the Arch and Great American policies unless they conflict with those in defendant's policy.

Section II.A.5 of defendant's policy further states:

The Limits of Insurance of this Policy will apply as follows:

. . .

5. Subject to paragraphs B.2^[2] and B.3^[3]above, the Other Aggregate Limit stated in Item 4.B of the Declarations [i.e., $4M] is the most we will pay for all “Ultimate Net Loss” . . . that is subject to an aggregate limit provided by the First Underlying Insurance Policy(ies).^[4]The Other Aggregate Limit stated in Item 4.B. applies separately and in the same manner as the aggregate limits provided by the First Underlying Insurance Policy(ies). [emphasis added]

Plaintiff asserts that defendant's aggregate limit should be applied in the same way as the Arch primary policy and its interpretation of the Great American first-layer excess policy. The Arch policy includes a coverage limit per project but does not limit the total amount of coverage across projects. The Great American policy explicitly states that the aggregate limit is the maximum the policy will cover. The following form endorsement provides that “[t]he aggregate limit applies separately and in the same manner as the aggregate limits provided” by the first underlying insurance policy. Similarly, defendant's policy states that the aggregate limit of $4 million “is the most [the defendant] will pay.”

Plaintiff focuses on defendant's policy language in Section II.A.5 which appears after the language that $4 million is most that defendant will pay. That later language provides that the aggregate limit “applies separately and in the same manner as the aggregate limits provided by the First Underlying Insurance Policy(ies).” Plaintiff argues that the aggregate limits of the Great American policy as well as defendant's policy should apply “separately and in the same manner” as the primary Arch policy which has no aggregate limit except as to each specific project. According to plaintiff, the $4 million aggregate applies to the accidents at both the I-83 and I-78 projects for $8 million in total coverage.

Defendant's policy follows the form of the underlying Arch and Great American policies. This does not mean that all the terms, conditions, and liability limits of defendant's policy are the same as the underlying policies. “A following form policy has the same terms and conditions as the primary policy, but has a different liability limit.” Kropa v. Gateway Ford, 974 A.2d 502, 506 n.2 (Pa. Super. Ct. 2009). Furthermore, “[i]t is well settled that the obligations of following form excess insurers are defined by the language of the underlying policies, except to the extent that there is a conflict between the two policies, in which case the wording of the excess policy will control.” Lexington Ins. Co. v. W. Pennsylvania Hosp., 318 F.Supp.2d 270, 274 n.3 (W.D. Pa. 2004), aff'd, 423 F.3d 318 (3d Cir. 2005)(emphasis added). Pennsylvania law is clear that a following form policy can set its own liability limits and include terms that differ from the underlying policy.

While it is undisputed that defendant's policy generally follows plaintiff's primary policy issued by Arch and first-layer excess policy issued by Great American defendant's following form endorsement has an explicit exception. It provides that "[e]xcept for the terms, definitions, exclusions or limitations of this Policy, the coverage provided by this Policy shall follow” the underlying insurance policies. In addition, the language in defendant's policy applying its general aggregate limit “separately and in the same manner as the aggregate limits provided by” the underlying insurance is subject to a limitation.^[5]Defendant's policy states unequivocally “the Other Aggregate Limit stated in Item 4.B of the Declarations [i.e., $4M] is the most we will pay for all ‘Ultimate Net Loss.'” (emphasis...