T&N, PLC v. PA Insur. Guar. Assn.

Opinions of the United
1994 Decisions States Court of Appeals
for the Third Circuit

11-29-1994

T&N, PLC v. PA Insur. Guar. Assn.
Precedential or Non-Precedential:

Docket 93-2011

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 UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT
___________

Nos. 93-2011 and 93-2012
___________

T&N, plc,
Appellant/Cross-Appellee

vs.

PENNSYLVANIA INSURANCE GUARANTY ASSOCIATION

Appellee/Cross-Appellant
___________

Appeal from the United States District Court
for the Eastern District of Pennsylvania
(D.C. Civ. No. 90-cv-04946)
___________

Argued
June 6, 1994
Before: MANSMANN, ALITO and ROSENN, Circuit Judges.
(Filed November 29, 1994)
___________

Mark F. Rosenberg, Esquire
Philip L. Graham, Jr., Esquire (ARGUED)
Tariq Mundiya, Esquire
Sullivan & Cromwell
125 Broad Street
New York, New York 10004

Richard L. Berkman, Esquire
William R. Spade, Jr., Esquire
Dechert, Price & Rhoads
1717 Arch Street
4000 Bell Atlantic Tower
Philadelphia, Pennsylvania 19103

COUNSEL FOR APPELLANT/CROSS-APPELLEE

Lise Luborsky, Esquire
Joseph M. Hankins, Esquire (ARGUED)
Britt, Hankins, Schaible &
Moughan
Two Penn Center Plaza
Suite 515
Philadelphia, PA 19102

COUNSEL FOR APPELLEE/CROSS-APPELLANT

___________

OPINION OF THE COURT
__________

MANSMANN, Circuit Judge.
The Pennsylvania Insurance Guaranty Association

("PIGA") is an association of independent property and casualty

insurers within Pennsylvania, created by The Pennsylvania

Insurance Guaranty Act, 40 Pa. Cons. Stat. Ann. § 1701 et seq.

(1970) for the purpose of providing a means of relatively prompt

payment of covered claims in the stead of an insolvent insurer.

Membership in PIGA is required before an insurer is authorized to

write insurance policies within Pennsylvania. A "covered claim"

under the Act must be the claim of a Pennsylvania "resident" or

must pertain to property permanently located in Pennsylvania.

In this interlocutory appeal arising out of multiple

claims seeking multi-millions of dollars in asbestos personal

injury damages, T&N, plc, an English corporation with its

principal place of business in England, seeks to recover from

PIGA over $5 million under the terms of a settlement agreement

with the American Mutual Liability Insurance Company. American

Mutual is the insolvent insurer of T&N's now dissolved

Pennsylvania asbestos manufacturing subsidiary, the Keasbey and

Mattison Company. Since Keasbey's dissolution, T&N has been the

target of thousands of claims brought by individuals alleging

bodily injury and/or property damage caused by Keasbey's
asbestos-containing products. Following an action which T&N

commenced against American Mutual in the federal district court,

T&N and American Mutual negotiated a settlement agreement which

bound American Mutual to pay T&N a certain sum under the Keasbey

policies. When American Mutual defaulted and was adjudged

insolvent, T&N commenced this action against PIGA.

We must decide whether T&N's claim based on the terms

of the settlement agreement is deemed to have arisen under

American Mutual's property and casualty insurance policy so as to

fall within the scope of covered claims under the Act, or whether

the agreement served to extinguish the Keasbey policies. We must

also decide whether T&N's claim satisfies the residency

requirement of the Act, either by virtue of Keasbey's

Pennsylvania residency while it was still viable, T&N's alleged

alter ego relationship with Keasbey, and/or by T&N's direct

Pennsylvania contacts. We must further decide the merits of

T&N's assertion that recovery from PIGA is authorized to the

extent that the underlying personal injury claimants are

Pennsylvania residents. Finally, we must decide whether T&N has

a potential claim against PIGA for claims arising from the loss

or liability to any property permanently situated in

Pennsylvania.

We conclude that the settlement agreement did indeed

arise under the insurance policies, and hence may support a

covered claim. We also conclude that T&N may have a viable

covered claim with respect to affected property, but that it does

not otherwise meet the residency requirements of the Act. We
hold, however, that because the settlement agreement encompassed

all of T&N's claims against the insurance company, T&N has only

one potential covered claim which is subject to the $300,000

limit under the Act.

I.

Keasbey and Mattison Company was a Pennsylvania

corporation with its principal place of business in Pennsylvania

and which manufactured asbestos-containing products from the

early 1930's until 1967. Keasbey was the named insured on

standard liability polices issued by American Mutual Liability

Insurance Company from at least April 1, 1946 through October 1,

1965. The policies provided primary coverage for asbestos and

other latent disease product liability claims. In 1962, Keasbey

sold its assets and filed for dissolution under Pennsylvania law.

The dissolution became final in 1967.

T&N, plc, is a corporation organized under the laws of

England and having its principal place of business in England.

From 1934 until 1938, T&N owned the majority of Keasbey's stock.

From 1938 until Keasbey's dissolution, T&N owned one hundred

percent of Keasbey's stock either directly or indirectly.

Beginning in 1978, T&N was sued by thousands of

individuals who alleged that since T&N was the sole shareholder

of Keasbey, it was liable to them for the bodily injury they had

suffered due to their exposure to asbestos. As a result, in 1982

T&N filed a declaratory judgment action against American Mutual

in the United States District Court for the District of Columbia,
seeking coverage for over 1,000 asbestos claims. With respect to

seven selected asbestos cases, the district court entered partial

summary judgment in favor of T&N. It found that due to its

status as a shareholder of Keasbey, T&N was an additional insured

under the policies which were issued to Keasbey. The district

court then directed the parties to attempt to reach an agreement

regarding the amount of damages T&N was entitled to receive.

Subsequently, T&N and American Mutual entered into a

settlement agreement which provided in pertinent part:
2. This Agreement is intended to confer rights
and benefits only upon T&N and American Mutual,
and is not intended to confer any right or benefit
upon any other person. No person other than T&N
or American Mutual shall have any legally
enforceable right under this Agreement. All
rights of action for any breach of this Agreement
are hereby reserved to T&N and American Mutual.

5. This Agreement is the entire agreement
between T&N and American Mutual. All antecedent
or contemporaneous extrinsic representations and
warranties made in the negotiation and preparation
of this Agreement are intended to be merged in the
Agreement and of no further effect.

6. For the purposes of resolving their dispute
American Mutual and T&N agree that the limits of
liability for all Keasbey policies shall be a total
1
of .

7. American Mutual shall pay to T&N the aforesaid
limits of all Keasbey policies . . . as well as a
portion of T&N's defense costs. . . .

8. Upon execution of this Agreement, American
Mutual shall be considered to have no further
duties or obligations based upon, arising out of

1
. The district court deleted the amount from the opinion,
stating that because the settlement was filed under seal, there
was no valid reason to disclose the amount.
 or related to any policy of insurance issued
to Keasbey by American Mutual and all such
policies shall be considered exhausted, null and
void and of no further force or effect.
(District Court Opinion dated May 28, 1992, pp.3-4)

T&N alleges that American Mutual defaulted on this

agreement because it failed to pay installments which were due on

January 3, 1989 and January 4, 1990. In an unrelated matter, on

March 9, 1989, the Massachusetts Supreme Judicial Court found

that American Mutual was insolvent, appointed a permanent

receiver, and ordered that the company be liquidated.

On July 30, 1990, T&N filed a complaint in the United

States District Court for the Eastern District of Pennsylvania,

seeking damages from PIGA under the Pennsylvania Insurance

Guaranty Act because the Association failed to assume American

Mutual's payment obligations under the settlement agreement2 and

under the terms of the actual insurance policies which were

issued to Keasbey.3

It is undisputed that the Pennsylvania Insurance

Guaranty Act and the Association were established in response to

the social harms which result from insurance insolvencies. Sands

v. Pennsylvania Insurance Guaranty Association, 283 Pa. Super.

217, 423 A.2d 1224 (1980). Every property and casualty insurance

carrier in Pennsylvania is a member of PIGA. Indeed, membership
2
. T&N is seeking to obtain the balance which remains due
under the settlement agreement.
3
. T&N also requested punitive damages for the bad faith
denial of its claims.
in PIGA is a condition of an insurer's ability to write insurance

policies in Pennsylvania. One of the purposes of the Act is to:
(1) Provide a means for the payment of covered
claims under certain property and casualty
insurance policies, to avoid excessive delay
in the payment of such claims, and to avoid
financial loss to claimants or policyholders
as a result of the insolvency of an insurer . . . .
40 Pa. Cons. Stat Ann. § 1701.102.

By order entered May 29, 1992, the district court found

that the settlement agreement is a matter which "arises under"

the insurance policies issued by American Mutual as that phrase

is utilized in section 1701.103(5)(a) of the Act. The court

denied summary judgment with respect to the other aspects of

Count I without prejudice to renewal after the completion of

discovery. Summary judgment was granted in favor of PIGA with

respect to T&N's claims which were based on the insurance

policies because the settlement agreement nullified the policies.

PIGA's motion for summary judgment on the bad faith claim was

also denied without prejudice to renewal after the completion of

discovery.

After discovery was completed, each party filed a

motion for summary judgment. By opinion and order entered May

27, 1993, the district court held in pertinent part that while

T&N was not a resident of Pennsylvania and that Keasbey's

residence was irrelevant, T&N could rely on the residency of its

underlying claimants and the right of those claimants to bring a

claim against T&N to meet the residency requirement of the Act.

However, PIGA would only be liable if the underlying claimants
were Pennsylvania residents at the time of the insured event4 or

if the claims were for losses to property which was permanently

located in Pennsylvania and the claims would have been covered by

a Keasbey policy. If the underlying claimant changed residence

during the time between exposure and manifestation and a policy

was in effect, PIGA's liability was to be prorated based on the

portion of the time the claimant lived in Pennsylvania during

that period. To ensure that recovery would be so limited, the

district court established an analytic framework to determine the

extent of PIGA's liability.

By order entered September 10, 1993, the district court

certified the 1992 and 1993 orders for interlocutory appeal,

specifically certifying seven questions for our review.5 By
4
. The district court defined the insured event as the
period from exposure to asbestos to the claimant's manifestation
of an asbestos-related disease.
5
. The questions which were certified are:

1) Did the District Court err in holding that the
settlement agreement arose out of insurance
policies?

2) Did the District Court err in holding that
Keasbey's residence was not relevant under
Section § 1701.103(5)(a)(i)?

3) Did the District Court err in holding that
T&N was not a resident of Pennsylvania?

4) Did the District Court err in holding that
T&N could rely on the claims represented in the
settlement agreement and the residence of the
underlying claimants to meet
the residency
requirement of the Act?

5) Did the District Court err in holding that T&N
order dated October 13, 1993, we granted the petitions for leave

to appeal pursuant to 28 U.S.C. § 1292(b). For purposes of our

review we have grouped the seven certified questions into three

main issues: (1) whether T&N has a covered claim; (2) if T&N does

have a covered claim, whether it has only one claim or a claim

for each of the underlying asbestos claimants; and (3) if T&N

does have a covered claim, whether the analytical framework

established by the district court was appropriate. Because we

determine that T&N does not have a covered claim under the

statute except for property damage and that only one claim is

implicated, we need not reach question 3.6

(..continued)
could rely on the claims represented in the
settlement agreement and the location of property
which sustained loss to meet the residency
requirement of the Act?

6) Did the District Court err in holding that the
$299,000 limit for recovery applied to each of
the underlying claims?

7) Did the District Court err in holding that PIGA's
liability for defense costs in the settlement
agreement was the smaller of the actual individual
amount or prorated amount of the costs?
(District Court's Order entered September 10, 1993)

6
. Federal courts sitting in diversity "must apply the
substantive law of the state whose laws govern the action."
Robertson v. Allied Signal, Inc., 914 F.2d 360, 378 (3d Cir.
1990) (citing Erie R.R. v. Tompkins, 304 U.S. 64 (1938). The
parties agreed that Pennsylvania substantive law applies to this
action.
 II.

A covered claim is defined in relevant part in 40 Pa.

Cons. Stat. Ann. § 1701.103 as:
5(a) "Covered Claim" means an unpaid claim,
including a claim for unearned premiums, which
arises under a property and casualty insurance
policy of an insolvent insurer and is:

(i) The claim of a person who at the time of
the insured event resulting in loss or liability
was a resident of the Commonwealth, or

(ii) A claim arising from an insured event
resulting in loss or liability to property which
was permanently situated in this Commonwealth
. . . .

* * *

Thus, an essential element of a covered claim is that

it arise out of an insurance policy. PIGA argues that T&N's

claim arises out of the settlement agreement, not out of the

insurance policies, because the insurance policies were nullified

upon the execution of the settlement agreement. Therefore, T&N's

claim should not be covered by the Act.

It does not appear that any Pennsylvania court has
addressed whether a settlement agreement which is entered into in

connection with an insurance policy could support a covered claim

under the Act. Courts in other states, however, have found that

disputes arising from settlement agreements do constitute covered

claims under their insurance guaranty acts. See Buggae v. Yellow

Checker Cab Co., 623 So.2d 906 (La. App. 1993); Lastie v. Warden,

611 So.2d 721 (La. App. 1992), cert. denied, 614 So.2d 64 (La.

1993); Betancourt v. Arizona Property & Casualty Insurance Fund,
170 Ariz. 296, 823 P.2d 1304 (1991); Thornock v. Pack River
Management Co., 790 F.Supp. 1014 (D. Mont. 1990) aff'd in part

and rev'd in part, 942 F.2d 794 (9th Cir. 1991); and London v.

Florida Insurance Guaranty Association, 486 So.2d 56 (Fla. App.

1986). PIGA argues that these cases are not dispositive because

the courts were not faced with the settlement of a coverage

dispute, the settlement agreement did not nullify the underlying

insurance policies, the settlement agreement did not act as a

novation, and the cases did not involve a non-resident insured

who was seeking recovery based on underlying claimants who had no

rights under the settlement agreement. We do not find these

arguments to be persuasive.

The settlement agreement between T&N and American

Mutual would never have come into being if not for the insurance

policies. The amount of money which was to be paid under the

settlement agreement represented the total of the policy limits

on all of the insurance policies.7 As a result, we find that the

settlement agreement arose under the insurance policies and may

support a covered claim provided that all of the other

requirements of the Act are met. To hold otherwise would

discourage parties from entering into settlement agreements.8

Thus, the district court did not err in holding that the

settlement agreement arose under an insurance policy.

7
. A portion of T&N's defense costs was also represented
in the agreement.
8
. We also note that under section 1701.201(b)(1)(iv) of
the Act, PIGA may review settlements to determine the extent to
which those settlements should be contested.
 III.

Our next question then is whether T&N is, or can be

considered to be, a Pennsylvania resident. Such a determination

is necessary because only Pennsylvania residents may assert a

covered claim under the Act. See § 1701.103(5)(a)(i).

Unfortunately, "resident" is not defined in the Act and it

appears that no Pennsylvania court has yet interpreted the term.

T&N suggests three methods by which it meets the residency

requirement of the Act: (A) it can use the residence of its

underlying claimants, (B) it can use Keasbey's residence, and (C)

it can be considered a resident of Pennsylvania.

A.

The district court held that while T&N was not a

Pennsylvania resident and Keasbey's residence was irrelevant, T&N

could use the residence of the underlying claimants to meet the

residency requirement of the Act. As a result, to the extent

that T&N could show that an underlying claimant was a

Pennsylvania resident at the time of the insured event, it would

have a covered claim. T&N's recovery would also have to be

prorated if an underlying claimant changed his or her residence

during the relevant period.

The district court grounded its decision to permit T&N

to use the residence of its underlying claimants on the fact that

the definition of "person" under the Act includes a claimant. As

a result, underlying claimants (tort victims) can have covered
claims under the Act. The district court then looked at section

1701.503(b) of the Act which states that, except in the case of a

first party claim for damage to property which has a permanent

location, if a person has a claim which is covered by more than

one guaranty association, he or she must seek recovery first from

the association located where the insured resides. The district

court then reasoned that because of the interaction between the

definition of "person" and section 1701.503(b), a non-resident

claimant could rely on both an insured tortfeasor's residence and

the right to make a claim in order to come within the Act.

Otherwise, a non-resident claimant who was seeking recovery from

the association where the insurer resides would not be able to

meet the residency requirement of the Act.

While the situation presented here is the opposite of

that described above, the district court stated that the analysis

was similar. Under section 1701.503(b), a non-resident insured

did not have to rely on the residence and claims of the

underlying claimants because the insured's residence determined

where recovery was to be sought in the first instance. However,

the fact that section 1701.503(b) indicated that a person, who

was defined as a policyholder or claimant, may have a claim which

was covered under more than one guaranty association suggested

that in certain situations, a non-resident insured could rely on

the residence of the underlying claimants and the right to make a

claim to meet the residency requirement. This interpretation

ensured that the underlying claimants would be able to recover

damages from the insured.
 While the district court noted that these claimants

also have a right to proceed against the guaranty association, it

stated that in cases where the insured is unable to recover from

its own guaranty association9, it would be unfair not to

interpret section 1701.103(5) to allow the insured to rely on the

residence of the underlying claimants. It also noted that such a

result would discourage settlements, would lead to multiple suits

which would delay payments to Pennsylvania claimants, and could

encourage non-resident insureds to engage in delaying tactics to

force the tort victims to bring actions against PIGA instead of

continuing their suits against the insured.

We disagree with the district court's analysis. The

purpose of the Act is clearly to protect Pennsylvania residents.

If the underlying Pennsylvania claimants can proceed against PIGA

to recover for their losses, their rights are protected; they

will not suffer any harm from the insured's inability to pay

them. Therefore, giving the insured the ability to rely on the

underlying claimants' residence does not provide the underlying

Pennsylvania claimants with money they would not have received if

the insured was not permitted to recover under the Act. The

district court's analysis does not provide the underlying

Pennsylvania claimants with any additional protection. Rather,

it merely allows a non-resident to make a claim against the Act.

Such a result violates the intent of the Act which is to protect

9
. England apparently does not have an insurance guaranty
association.
Pennsylvania residents. While it is unfortunate that T&N

apparently does not have a guaranty association which it can

approach for relief, this does not affect Pennsylvania and PIGA

should not be forced to pay T&N's claim based on this reason

alone.

We note as well that PIGA is authorized to pay

"claims". Therefore, the claims that are relevant are those that

PIGA is being asked to pay. Since T&N is the one with the claim,

its residence is the one which should be examined. As a result,

T&N must be the one who was a resident of Pennsylvania at the

time of the insured event which resulted in loss or liability.

At the time of the insured event, T&N was a resident of England.

Thus, we conclude that T&N cannot claim recovery from the

Association by adverting to the Pennsylvania residency of its

underlying claimants.

B.

With respect to whether T&N has a covered claim in its

own right, T&N first argues that the district court erred in

finding that Keasbey's residence was irrelevant. In T&N's view,

Keasbey's residence should be determinative because it was a

Pennsylvania resident, the actions leading up to the asbestos

claims took place in Pennsylvania, Keasbey's insurance policies

were issued in Pennsylvania and PIGA would have had to pay the

claim if Keasbey had not been dissolved.

The question of whether Keasbey's residence is relevant

depends on what interpretation is given to the phrase, ". . . who

at the time of the insured event resulting in loss or liability
was a resident. . . ." T&N argues that we should look at

residency at the time of the insured event. At that point in

time, Keasbey was still in existence and was a Pennsylvania

resident. Therefore, T&N asserts, Keasbey's residence should be

sufficient to bring T&N within the Act.

We do not find this argument to be persuasive. The use

of the word "resulting" indicates that a loss or determination of

liability must occur before a covered claim will exist. If the

legislature had intended to provide coverage for persons who had

not yet incurred a loss or liability at the time of the insured

event, it could have so provided by using a phrase such as "who

at the time of the insured event which may give rise to a loss or

liability was a resident...." The fact that it did not do so

indicates that an actual loss or liability has to be suffered

before a person may have a covered claim. Therefore, unless an

actual loss or liability is incurred, the person's residence is

irrelevant for purposes of the Act.

The asbestos claims did not begin until 1978. After

1969, no claims could be maintained against Keasbey due to

Pennsylvania's corporate dissolution statute.10 Keasbey had not

sustained any loss or liability by 1969. Since Keasbey has not

suffered any loss or liability, it cannot have a covered claim

under the Act and its residence is irrelevant.

10
. 15 P.S. § 2111 (Purdon 1967), repealed and
substantially re-enacted by 15 Pa. Cons. Stat. Ann. §1979 (1992).
 Again, we note that since PIGA is authorized to pay

covered claims, the claims which are significant are those which

PIGA is being asked to pay. Therefore, since Keasbey is not

presenting a claim, its residence is irrelevant.

C.

Finally, T&N argues that it can be viewed as a

Pennsylvania resident for purposes of the Act. As mentioned

above, it does not appear that any Pennsylvania court has

attempted to interpret the meaning of "resident" with respect to

the Act. In Pennsylvania Insurance Guaranty Association v.

Charter Abstract Corporation, 790 F. Supp. 82 (E.D. Pa. 1992),

the district court held that a corporation could have only one

residence. Recognizing that an individual person could only have

one residence, the court could not ascertain why a corporation

should be treated differently from an individual. Thus,

residence would be determined by either the state of

incorporation or the principal place of business. The ultimate

issue of which location was to be used was not reached because

the corporation in question did not meet either test. See also
Kroblin Refrigerated Xpress v. Iowa Insurance Guaranty

Association, 461 N.W.2d 175 (Iowa 1990).

We find this analysis to be persuasive. It is

undisputed that T&N was incorporated in England and has its

principal place of business in England. As a result, we find

that it is not a Pennsylvania resident under the Act.
 T&N argues that since it is subject to jurisdiction in

Pennsylvania, it should be considered a Pennsylvania resident.

However, the exercise of jurisdiction is not limited to those who

are residents of the state which is attempting to assert

jurisdiction. As a result, if residence were connected to

jurisdiction, it would increase the number of guaranty

associations which could be liable, and lead to disputes

regarding which association should be liable for the payments.

This would defeat one of the purposes of the Act which is to

avoid delays in payment.

T&N also argues that since the underlying claimants

have brought suit against it because it is allegedly the alter

ego of Keasbey, T&N should be able to use Keasbey's residence to

come within the Act. It is unclear whether any court has found

that T&N is the alter ego of Keasbey to such an extent that the

corporate veil should be pierced and that T&N should be held

liable for Keasbey's actions.11 However, the Court of Appeals

11
. Several courts have addressed the relationship between
T&N and Keasbey. See Ward v. Armstrong World Industries, Inc.,
677 F. Supp. 1092 (D. Colo. 1988) (T&N is neither the alter ego
nor the successor of Keasbey. T&N only owned Keasbey's stock.
After the dissolution, Keasbey's assets were sold to companies
other than T&N and T&N did not continue in any of Keasbey's
product lines.); Kacprzycki v. A.C.&S., Inc., No. 88-34, 1990
U.S. Dist. Lexis 16552 (D. Del. October 31, 1990) (T&N was not
the alter ego of Keasbey and could not be held liable for damages
allegedly caused by Keasbey); Watkins v. Turner & Newall Ltd.,
Nos. 84-1742-17 & 86-0087-17, 1988 U.S. Dist. Lexis 8778 (D. Ga.
1988) (T&N is not the alter ego of Keasbey and jurisdiction
cannot be found over T&N based on Keasbey's presence in the forum
state); and Colcord v. Armstrong World Industries, Inc., No. 84-
912 (D. Colo. May 13, 1985) (plaintiff had failed to establish a
prima facie showing that T&N so dominated and controlled Keasbey
that the corporate veil should be pierced or that jurisdiction
for the Fifth Circuit specifically found in Hargrave v.

Fibreboard, Corp., 710 F.2d 1154 (5th Cir. 1983) that T&N's

relationship to Keasbey was not sufficient for Texas to have

jurisdiction over T&N through Keasbey.12 The Court also found

that T&N was not the alter ego of Keasbey.13
(..continued)
should be found over T&N due to Keasbey's presence in the forum).
But see City of New York v. AAER Sprayed Insulations Inc., (N.Y.
Sup. Ct., November 1, 1990) (T&N's motion for partial summary
judgment with respect to Keasbey's products on the basis that
Keasbey was not T&N's alter ego denied); City of New York v. AAER
Sprayed Insulations, 182 A.D.2d 516, 583 NYS.2d 911 (N.Y. App.
Div., April 16, 1992) (affirming January 11, 1991 lower court
decision denying T&N's motion for summary judgment because there
were material issues of fact regarding whether T&N is the alter
ego of Keasbey and whether T&N suppressed knowledge regarding the
hazards of asbestos to avoid having to place warnings on its
product) and Scharold v. GAF Corp., No. C-1-84-1062 (S.D. Ohio
January 10, 1985) (motion to dismiss based on lack of personal
jurisdiction denied because it was unclear that T&N was not
Keasbey's alter ego and it was premature to rule on that
question).

Three other unreported cases from the Southern District
of Ohio reach the same result. See Herper v. GAF Corporation,
No. C-1-84-1028 (S.D. Ohio February 14, 1985), William & Letcher
v. Pfizer, Inc., No. C-1-84-515 (S.D. Ohio February 15, 1985) and
Lloyd v. Pfizer, Inc., No. C-1-84-397 (S.D. Ohio February 15,
1985). However, it should be noted that these cases did not
engage in a separate analysis of the question. Rather, they
entered orders denying the motions to dismiss based on Scharold
and Bowman v. Armstrong World Industries, No. C-2-81-1492 (S.D.
Ohio, August 8, 1994), a decision which was also relied on by the
Scharold court. In addition, a copy of the Scharold opinion was
attached to each of the orders.
12
. It should be noted that Scharold referred to Hargrave
and cited Bowman which held that Hargrave was distinguishable
because the law in Ohio was that unless there is a hearing
regarding jurisdiction, a plaintiff only needs to make a prima
facie showing of jurisdiction. A hearing on jurisdiction took
place in Hargrave but apparently did not take place in Scharold
or Bowman.
13
. A successor liability claim was also brought against
T&N but the Court fount that it had been waived.
 In addition, T&N alleged in the complaint it filed in

the D.C. District Court that it was being sued because it was the

former stockholder of Keasbey and exercised such control over

Keasbey that Keasbey was T&N's alter-ego. The district court

found that T&N was an additional insured under Keasbey's

insurance policies because the definition of an "insured" under

the policies included stockholders. Therefore, the district

court's finding was based on an interpretation of the policies,

rather than a determination that Keasbey was T&N's alter ego.

Finally, the record on appeal does not provide any

indication regarding the nature of the relationship between T&N

and Keasbey beyond the fact that T&N was the majority and then

the sole shareholder of Keasbey. In its brief, T&N does not

present any arguments establishing the existence of an alter ego

relationship. Rather, it merely states that some of the

complaints which have been filed against it allege that it is

liable because of an alter ego relationship between it and

Keasbey. In addition, there is no information regarding what

happened after the sale - i.e., how the money realized was

distributed, whether T&N retained any liability for Keasbey's

past conduct, etc.

Thus, we conclude that the district court did not err

in holding that T&N was not itself a resident of Pennsylvania for

purposes of asserting PIGA liability.

IV.
 We note that the Act does not limit recovery to

persons. Recovery can also be made with respect to any property

which is permanently located in Pennsylvania. Section

1701.103(5)(a)(ii) provides:
(5)(a) "Covered claim" means an unpaid
claim, including a claim for unearned
premiums, which arises under a property and
casualty insurance policy of an insolvent
insurer and is:
* * *

(ii) A claim arising from an insured
event resulting in loss or liability to
property which was permanently situated in
this Commonwealth.

Unlike section 1701.103(5)(a)(i), T&N does not have to

be a resident of Pennsylvania to recover under section

1701.103(5)(a)(ii) for damage to property permanently located in

Pennsylvania. To the extent that T&N's claims are based on such

property, PIGA will be liable. The question of whether any such

property exists should be considered by the district court. If

the district court finds such property, the court must further

determine whether an unpaid claim is present with respect to that

property, in light of any recovery which might have already

transpired. The district court must consider whether permitting

payment with respect to this property will result in a double

payment, once to the property owner and once to T&N. Finally,

the district court must scrutinize whether T&N's claim is

properly characterized as arising out of a loss or liability to

the property itself. In connection with this, the district court

may consider whether the lack of payment is the result of the
insolvency of the insurance company and its failure to pay the

monies which remained due under the settlement agreement, and

whether T&N's claim is thus transformed into a claim under

section 1701.103(5)(a)(i) for which PIGA is only liable if the

person bringing the claim is a Pennsylvania resident.

V.

As we have found that T&N may have a covered claim with

respect to property permanently located in Pennsylvania, we must

turn to the question of the number of covered claims present.

The Act states that the maximum which can be paid for a covered

claim is $300,000 less a $100 deductible amount. PIGA argues

that since T&N agreed to take a lump sum payment under the

settlement agreement, it only has one covered claim which is

subject to the $300,000 statutory limit less a $100 deductible.14

T&N counters that the fact that it entered into one settlement

agreement is not dispositive because it could have entered into

separate settlement agreements for each of the underlying claims

and/or insurance polices. To allow it to have only one claim

because it settled numerous claims in one agreement would elevate

form over substance and be contrary to the policy encouraging

settlements. Finally, even if the underlying claims are not

treated separately, T&N asserts that it is still entitled to

recover the statutory limit for each insurance policy which was

14
. See § 1701.201(b)(i).
issued by American Mutual. Again, it does not appear that any

Pennsylvania court has addressed this question.

The district court based its finding that T&N had a

separate covered claim for each of the underlying claimants on

the Connecticut Supreme Court case of Connecticut Insurance

Guaranty Association v. Union Carbide Corp., 217 Conn. 371, 585

A.2d 1216 (1991). We find that such reliance was misplaced.

The Union Carbide case arose out of the 1984 disaster

in Bhopal, India. Over 500,000 claims were brought against Union

Carbide. The government of India assumed the right to prosecute

all claims arising out of the disaster and all of the claims were

consolidated into a single action. In February of 1989, Union

Carbide and Union Carbide of India15 entered into a settlement

with the Indian government. Union Carbide then approached its

insurance companies for reimbursement of the payments it had made

under the settlement agreement. Union Carbide's solvent insurers

paid to the limits of their insurance polices. Three excess

insurers whose policies provided for $32,500,000 in coverage

became insolvent.16 Union Carbide then turned to the Connecticut

Insurance Guaranty Association ("CIGA") for payment.

The question facing the Connecticut Supreme Court was

whether Union Carbide had only one covered claim which was

15
. Union Carbide owned 50.9 percent of the stock in Union
Carbide of India.
16
. Even if all of the insurers had paid the full amount of
their coverage, Union Carbide would still have been responsible
for $217,500,000 under the settlement agreement.
subject to the $300,000 statutory limit or whether Union Carbide

had a covered claim for each of the Bhopal victims who had been

paid from non-insurance sources under the settlement agreement.17

CIGA argued that a covered claim is a claim for indemnification

under a liability policy, not the separate claims of the tort

victims. As a result, Union Carbide had only six covered claims

encompassing the six insurance policies which were issued by the

insurance companies. The Supreme Court of Connecticut found that

under Connecticut General Statute § 38-175, when an insurance

company issued a policy, it became absolutely liable once a loss

occurred under the policy. In addition, the statute also allowed

a tort victim to proceed directly against the insurer if the

victim had obtained a judgment against an insured that had not

been satisfied within thirty days. In light of both of these

factors, the court found that the Bhopal victims had a cause of

action against the insolvent insurers in connection with the

policies they had issued. In addition, under the Connecticut

Insurance Guaranty Act, a covered claim included underlying

claimants. The fact that the Government of India had taken

control of all of the claims and consolidated them into a single

action did not reduce Union Carbide's claim to a single claim.

Rather, the statute which authorized the Indian government to

consolidate claims created a procedural device which gave the

government the power to represent the victims and did not

17
. Since it was undisputed that Union Carbide was a
resident of Connecticut, residence was not an issue.
diminish Union Carbide's right of indemnification. Consequently,

the Connecticut court then affirmed the trial court's finding

that the $300,000 limit applied to each of the underlying claims

and that CIGA must pay the claims presented under the six

insurance policies which were issued by the insolvent insurers.18

We find Union Carbide to be distinguishable. Union

Carbide settled with the underlying claimants. The settlement

agreement can thus be viewed as the embodiment of each claim

which was filed against Union Carbide. However, in the present

case, T&N settled with the insurance company. The settlement

agreement is not the embodiment of the claims filed by the

underlying claimants, as is demonstrated by the fact that

American Mutual agreed to pay up to the policy limits on each of

the policies it had issued.19 Payment was not related to the

individual claims which had been filed. As a result, we find

that in light of the fact that T&N entered into a single

settlement agreement with American Mutual which encompassed all

of its claims against the insurance company, it only has one

covered claim which is subject to the $300,000 statutory limit.

We do not believe that we are exalting form over substance

because T&N agreed to the terms and the form of the agreement.

T&N also requests recovery for its defense costs. Upon

18
. The court also addressed other issues connected to this
analysis which are not relevant here.
19
. In fact, under the terms of the agreement, only T&N and
American Mutual have any rights under the agreement.
remand the district court shall also address to what extent, if

any, T&N may recover from PIGA for its defense costs.

VI.

The orders of the district court which were certified

to us are hereby affirmed in part and reversed in part. The

matter is remanded to the district court for resolution of the

property issue and the request for defense costs. Each party to

bear its own costs.
RE: T&N plc, Appellant v. PENNSYLVANIA INSURANCE GUARANTY

ASSOCIATION, Nos. 93-2011/2012

_________________________________________________________________

ROSENN, Circuit Judge, dissenting.

Many persons who charged that T&N was the alter ego of

its subsidiary, Keasbey and Mattison Company (Keasbey), and

therefore responsible for bodily injuries they sustained due to

asbestos exposure, sued T&N. T&N thereupon filed a declaratory

judgment action against American Mutual in the United States

District Court for the District of Columbia. T&N's claim arose

out of a policy naming Keasbey as the insured, although Keasbey

had dissolved in 1967 (Maj. Op. at 4) and American Mutual had

written its last policy to Keasbey in 1965. The court found that

T&N was an additional insured under the policy and directed the

parties to attempt to reach a settlement. They did, and American

Mutual agreed to pay T&N a significant sum of money, more than

half of which has been paid.

The settlement agreement explicitly provided that

American Mutual, upon the execution of the agreement, would not

only have no further obligations "based upon, arising out of or

related to any policy of insurance issued to Keasbey by American

Mutual," but that all such policies shall be considered

"exhausted, null and void and of no further force or effect." I

cannot agree, therefore, that the plain language of that

agreement, solemnly executed in settlement of then pending
litigation in court, can be ignored. The settlement agreement

constitutes a substituted contract, and, therefore, whether it

initially had its genesis in the policies written by American

Mutual can leave no lingering liability arising under those

insurance policies. I therefore respectfully dissent.

I.

I agree with the district court and the majority here

that Keasbey's residence is irrelevant and that T&N is not a

resident of Pennsylvania. (Maj. Op. at 7). The majority,

however, concludes that the lack of residency does not bar T&N

from recovery because the Act does not limit recovery to persons,

and permits recovery with respect to property permanently located

in Pennsylvania. Without any discussion at this point of the

effect of the settlement agreement on any claim of T&N against

American Mutual, the majority decides that if T&N's claim may be

"properly characterized as arising out of a loss or liability to

the property itself," the district court may find that PIGA is

liable if the tort claimant is a Pennsylvania resident.

The majority appears to rationalize that if the

original tort claimant was a permanent Pennsylvania resident who

would have had a claim against T&N arising out of the asbestos

condition of the resident's property, that in itself would

suffice to permit T&N to recover, regardless of the settlement

agreement between T&N and American Mutual. The majority offers

no explanation and advances no reasons for disregarding the
specific language of the settlement agreement which plainly

states that (a) no rights or benefits were conferred upon any

person except the parties to the agreement, and (b) all policies

of insurance issued to Keasbey and all obligations arising out of

or related to any policy of insurance to Keasbey by American

Mutual were "exhausted, null and void and of no further force and

effect" upon execution of the agreement.

The result of the majority's expansive rationalization

is to make the tort claimants the fundament of T&N's claim and

the springboard for purposes of T&N recovery; it completely

obliterates the settlement agreement. Stated another way, the

majority has turned back the clock sometime prior to the

execution of the settlement agreement and treats the agreement as

if it never existed.

II.

A federal district court exercising diversity

jurisdiction must apply the choice of law rules of the forum

state. Klaxon Co. v. Stentor Electric Mfg. Co., 313 U.S. 487, 497

(1941); American Air Filter Co. v. McNichol, 527 F.2d 1297, 1299

n. 4 (3d Cir. 1975). Accordingly, we must apply Pennsylvania

choice of law rules in this case.

Pennsylvania courts generally honor the intent of the

contracting parties and enforce a choice of law provision in a

contract. Smith v. Commonwealth Nat. Bank, 557 A.2d 775, 777
(Pa. Super. 1989), appeal denied, 569 A.2d 1369 (Pa. 1990). The
Pennsylvania courts have adopted section 187 of the Restatement

(Second) Conflict of Laws which provides that:
(1) The law of the state chosen by the
parties to govern their contractual rights
and duties will be applied if the particular
issue is one which the parties could have
resolved by an explicit provision in their
agreement directed to that issue.

See e.g., Schifano v. Schifano, 471 A.2d 839, 843 n. 5 (Pa.

Super. 1984). The settlement agreement contains a choice of law

provision which provides "[t]his agreement shall be governed by

the substantive law of the State of New York." Therefore, this

court should apply New York substantive law to determine the

character of the agreement.

A substituted contract is a novation and "[a]n existing

claim can be instantly discharged by the substitution of a new

executory agreement in its place." 6 Corbin on Contracts, § 1293

(West. Pub. Co. 1962) (footnote omitted); Malanca v. Falstaff

Brewing Co., 694 F.2d 182, 184 (9th Cir. 1982). Novation is the

"[s]ubstitution of a new contract, debt or obligation for an
existing one, between the same or different parties." Black's

Law Dictionary, 6th Ed. Cent. Ed.
 Under New York law,20 we are faced here with a classic

novation and any suits by T&N must be based on the settlement

agreement rather than the earlier insurance policies. In Health-

Chem Corp. v. Baker, 915 F.2d 805 (2d Cir. 1990), Health Chem

Corp. sought a declaration that the settlement agreement

negotiated with a former director was invalid and required

renegotiation. The court of appeals, applying New York law,

affirmed the district court's rejection of the corporation's

complaint, and held that "[w]hen the parties to a contract enter

into a new agreement that expressly supersedes the previous

agreement, the previous agreement is extinguished, thereby

reducing the remedy for breach to a suit on the new agreement."

Id. at 811; Wigton v. Rosenthall, 747 F. Supp. 247 (S.D.N.Y.

1990); Flaum v. Birnbaum, 120 App.Div.2d 193, 508 N.Y.S.2d 115

(N.Y.A.D. 4 Dept. 1986).

There is a substituted contract or novation if: (1)

there is a valid former contract, (2) the parties agree to a new

contract, (3) the parties form a valid new contract, and (4) the

parties intend to extinguish the old contract. Flaum v.
Birnbaum, 120 App.Div.2d 193. In this case, all the elements of

20
. The Restatement (Second) of Contracts, § 280, treats a
novation more narrowly than does New York and defines it as a
substituted contract including as a party one who was neither the
obligor not the obligee of the original duty. However, § 279 of
the Restatement (Second) of Contracts provides: "A substituted
contract is a contract that is itself accepted by the obligee in
satisfaction of the obligor's existing duty."
a novation are met: (1) there was a valid insurance contract,

(2) the parties agreed to a new contract, the settlement

agreement, (3) the agreement is a valid contract, and (4) the

parties explicitly stated that the new contract extinguished the

old contract upon execution of the agreement and would be of no

further force and effect. The settlement agreement, therefore,

extinguished any rights that T&N enjoyed under the original

policy. "The substituted contract discharges the original duty

and breach of the substituted contract by the obligor does not

give the obligee a right to enforce the original duty."

Restatement (Second) of Contracts, § 279(2).

T&N's argument that American Mutual's failure to

fulfill the terms of the substituted contract revives the old

insurance contracts is contrary to the clear law. T&N confuses

novation with an executory accord without satisfaction. Cf.

Bandman v. Finn, 185 N.Y. 508, 79 N.E. 175 (C.A.N.Y. 1906).
It is the essence of an accord that the
original duty is not satisfied until the
accord is performed, a result that is
sometimes suggested by use of the term
"executory accord."

Restatement (Second) of Contracts, § 281, comment a. It thus

differs from a substituted contract "under which a promise of

substituted performance is accepted in satisfaction of the

original duty." Id. comment e.

In National American Corp. v. Fed. Republic of Nigeria,

448 F. Supp. 622 (S.D.N.Y. 1978), aff'd, 597 F.2d 314 (2d Cir.
1979), the court, applying New York law, distinguished an

executory accord from a substitute contract.
An executory accord is, by definition, "an
agreement that an existing claim will be
discharged in the future by the rendition of
a substituted performance." 6 Corbin,
Contracts § 1269 at 75 (1962) (emphasis
added) . . . In contrast, a substitute
contract operates as its name implies -- as
an immediate discharge and satisfaction of
existing claims in return for the new
contract, even though performance is to
commence in the future. Should a breach
later occur, the creditor is limited to his
rights under the substitute agreement.

Id. at 643 (citation omitted).

Thus, under the settlement agreement here, the old contract is

dead. The subsequent agreement extinguished the old one and the

remedy for any breach thereof is under the superseding agreement.

See Northville Inds. Corp. v. Fort Neck Oil Terms. Corp., 474

N.Y.S. 2d 122, aff'd, 64 N.Y.2d 930, 488 N.Y.S.2d 648, 427

N.E.12d 1102 (1985). Accordingly, the only remedy for a breach

of the substituted contract is a suit on that contract.

III.

Therefore, in response to the questions certified by

the district court, I would hold as to question 4 that it erred

in holding that T&N could rely on the underlying claims resolved

in the settlement agreement, and the residence of the underlying

claimants to meet the residency requirement of the Act. In

response to question 5, I would similarly hold that it erred in
holding that T&N could rely on the claims represented in the

settlement agreement and the location of property which sustained

loss to meet the residency requirement of the Act. Under my view

of the case, there is no need to reach the issues raised in

questions 6 and 7. I would answer the first three questions in

the affirmative.