USX Corp v. Liberty Mutl Ins Co

Opinions of the United
2006 Decisions States Court of Appeals
for the Third Circuit

4-10-2006

USX Corp v. Liberty Mutl Ins Co
Precedential or Non-Precedential: Precedential

Docket No. 04-1277

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 PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 04-1277 and 04-1300

USX CORPORATION

v.

LIBERTY MUTUAL INSURANCE COMPANY,

Appellant in No. 04-1277

USX CORPORATION,

Appellant in No. 04-1300

v.

LIBERTY MUTUAL INSURANCE COMPANY

On Appeal from the United States District Court
for the Western District of Pennsylvania
(D.C. Civ. No. 01-00889)
Honorable Donald E. Ziegler, Chief Judge,
and Honorable Terrence F. McVerry, District Judge*

Argued March 7, 2006

*Chief Judge Ziegler entered the June 27, 2002 order, adopting the
magistrate judge’s Report and Recommendation, and Judge McVerry
entered the final judgment on January 9, 2004.
 BEFORE: ROTH and GREENBERG, Circuit Judges, and
BUCKWALTER, District Judge**

(Filed: April 10, 2006)

Mark A. Aronchick (argued)
Daniel Segal
Hangley, Aronchick, Segal & Pudlin
One Logan Square, 27th Floor
Philadelphia, PA 19103

Joseph G. Blute
Mintz, Levin, Cohn, Ferris,
Glovsky & Popeo, P.C.
One Financial Center
Boston, MA 02111

Attorneys for Appellant/Cross-Appellee

Joseph J. Bosick (argued)
Alfred S. Pelaez (argued)
Pietragallo, Bosick & Gordon
One Oxford Centre, 38th Floor
301 Grant Street
Pittsburgh, PA 15219

Attorneys for Appellee/Cross-Appellant

Mark F. Horning
Steptoe & Johnson
1330 Connecticut Ave., NW
Washington, D.C. 20036

Attorneys for Amici Curiae
American Insurance Association,
Property Casualty Insurers Association

**Honorable Ronald L. Buckwalter, Senior Judge of the United States
District Court for the Eastern District of Pennsylvania, sitting by
designation.

2
 of America, The Insurance Federation of
Pennsylvania Inc., and the Pennsylvania
Compensation Rating Bureau

Laura A. Foggan
John C. Yang
1776 K Street NW
Washington, DC 20006

Attorneys for Amici Curiae
Complex Insurance Claims
Litigation Association

OPINION OF THE COURT

GREENBERG, Circuit Judge.

I. INTRODUCTION

This matter comes on before the court on an appeal by
defendant Liberty Mutual Insurance Company (“Liberty Mutual”)
from an order of the district court entered on June 27, 2002, granting
partial summary judgment in favor of plaintiff USX Corporation
(“USX”) on its contract claims arising out of Liberty Mutual’s refusal
to defend and indemnify USX in various actions brought against it
under a Workmen’s Compensation/Employers’ liability policy
(“WC/EL policy”) that Liberty Mutual had issued to USX.1 Liberty
Mutual also appeals from the final judgment entered in favor of USX
on January 9, 2004. The case is also before us on a cross-appeal that
USX filed from the portion of the district court’s order of June 27,
2002, granting Liberty Mutual partial summary judgment and the
judgment entered on January 9, 2004, in favor of Liberty Mutual on
USX’s claim charging bad faith denial of insurance coverage. For the
reasons we set forth below, we will reverse the order of June 27,
2002, and the judgment of January 9, 2004, to the extent that they are

1
Although this action implicates multiple policies, inasmuch as
the issue before us is the same under all the policies we refer to the
action as though it involves a single policy. In this regard we note that
the magistrate judge in her Report and Recommendation that became the
district court’s opinion sometimes referred to all the policies singularly.

3
in favor of USX and will affirm the order and judgment to the extent
that they are in favor of Liberty Mutual. Furthermore, we will remand
the case to the district court to enter a final summary judgment in
favor of Liberty Mutual on the portions of the summary judgment that
we are reversing.

II. FACTUAL AND PROCEDURAL BACKGROUND

A. The Parties and the Relevant Insurance Contract

USX is a Delaware corporation with its principal place of
business in Pennsylvania, and Liberty Mutual is a mutual insurance
company founded by an act of the Massachusetts Legislature with its
principal place of business in that state.2 In 1912, Liberty Mutual
issued to USX a standard form WC/EL policy, which the parties
annually renewed until January 1, 1980.3 Although issued in
Pennsylvania, the WC/EL policy provided coverage to USX for
specified operations in identified states, including some USX
operations in Texas.

The WC/EL policy had two parts: “Coverage A– Workmen’s
Compensation” (“Coverage A”) provided coverage for USX’s
statutory liability for workmen’s compensation claims; and “Coverage
B– Employers’ Liability” (“Coverage B”) provided coverage for
liability that the exclusivity provisions of the applicable workmen’s
compensation statute did not bar. Thus, ordinarily, at least, Coverage
B covered workmen’s claims that were not based on no fault
workmen’s compensation statutory provisions.4 The portion of the
WC/EL policy most germane to this appeal is Coverage B, which
covered “all sums which [USX] shall become legally obligated to pay

2
The facts relevant to our decision are undisputed, and we refer
to the Joint Appendix filed by counsel as “J.A.”
3
Only the period between January 1, 1952 and January 1, 1980,
is at issue. The parties have settled their dispute regarding coverage
before January 1, 1952.
4
Coverage B claims usually, if not always, are predicated on
common law principles as sometimes modified by statute. See, e.g., N.J.
Stat. Ann. §§ 34:15-1 to 6 (West 2000).

4
as damages because of bodily injury by accident or disease[.]” J.A. at
662. The WC/EL policy contained a single “Definitions” section,
applicable to both Coverage A and Coverage B, containing the
following definition:

Bodily Injury by Accident; Bodily Injury by Disease
The contraction of disease is not an accident within the
meaning of the word ‘accident’ in the term ‘bodily
injury by accident’ and only such disease as results
directly from a bodily injury by accident is included
within the term ‘bodily injury by accident.’ The term
‘bodily injury by disease’ includes only such disease as
is not within the term ‘bodily injury by accident.’

J.A. at 662.5 The policy did not define “accident” or “disease.”

While Coverage B insured USX for damages resulting from
either “bodily injury by accident” or “bodily injury by disease,” there
was a notable limitation on the latter coverage in that the policy did
not cover a claim for “bodily injury by disease” “unless prior to thirty-
six months after the end of the policy period written claim is made or
suit is brought against the insured for damages[.]” J.A. at 662. This
thirty-six-month claim limitation period, by its terms, applies only to
claims for “bodily injury by disease.” J.A. at 662.

B. The Underlying Complaints and the Claim for Coverage

Beginning in 1990, certain of USX’s former employees and
their survivors filed hundreds of non-workmen’s compensation
actions against USX in Texas, seeking damages for injuries sustained
by the former employees while allegedly being exposed to asbestos
products and/or asbestos-contaminated premises.6 On June 27, 1997,

5
At oral argument, counsel for USX suggested that the quoted
definition did not apply to both Coverage A and Coverage B. We
disagree and note that the WC/EL policy uses the limiting phrase “Under
coverage A” when limiting application of a provision to Coverage A or
the phrase “Under coverage B” when limiting application of a provision
to Coverage B. The definition for “Bodily Injury by Accident; Bodily
Injury by Disease” does not contain any such limiting phrase.
6
The employees’ claims against their employer USX are not
barred in Texas which permits the additional recovery of exemplary

5
seven years after the former employees and their survivors filed the
initial asbestos-related lawsuits against USX, USX sought coverage
for defenses and indemnification from Liberty Mutual in the
underlying actions. By letter dated February 28, 1998, from its in-
house coverage counsel, Liberty Mutual denied USX’s claim for
coverage, explaining that there was no potential coverage and citing,
inter alia, the thirty-six-month claim limitation provision.

C. The Proceedings in the District Court

In response to the Liberty Mutual disclaimer, USX filed this
diversity of citizenship action on May 18, 2001, against Liberty
Mutual in the district court asserting a claim for breach of insurance
contract (Count I), seeking a declaratory judgment that there was
coverage (Count II), claiming insurance bad faith under 42 Pa. Const.
Stat. Ann. § 8371 (West 1998) (Count III), seeking indemnity (Count
IV), and asking for contract reformation (Count V). In sum, USX
alleged that the policy covers asbestos-related claims because they are
for “bodily injury by accident,” to which the thirty-six-month claim
limitation provision does not apply, or, in the alternative, that the
contract should be reformed as it “defeated the reasonable
expectations of [USX] and is thus contrary to public policy.” See J.A.
52. The district court referred the case to a magistrate judge under 28
U.S.C. §§ 636(b)(1)(A) and (B).

On October 1, 2001, Liberty Mutual filed a motion for
summary judgment. As with its initial denial of coverage, Liberty
Mutual asserted that the policy did not cover the underlying claims
because they were for “bodily injury by disease” and thus the thirty-
six-month claim limitation provision precluded coverage for them
inasmuch as the plaintiffs did not file their actions within thirty-six
months following the end of the policy period.7 On February 21,
2002, USX filed a cross-motion for summary judgment as to Counts I-
IV.

damages against an employer in wrongful death cases, where gross
negligence or intentional misconduct is shown. Tex. Lab. Code Ann. §
408.001(b) (Vernon 2005). The plaintiffs named additional defendants
in the actions, but we need not list them.
7
USX does not assert that any of the plaintiffs made a written
claim or brought a suit against USX prior to thirty-six months after the
end of the policy period.

6
 The magistrate judge to whom the court referred the case
issued a Report and Recommendation on May 15, 2002,
recommending that the court grant summary judgment in favor of
USX on its claims for breach of contract, declaratory relief and
indemnity (Counts I, II, and IV, respectively), but that the court grant
summary judgment in favor of Liberty Mutual on the insurance bad
faith claim (Count III). The magistrate judge concluded with regard to
Counts I, II and IV that the definition of “bodily injury by accident”
was ambiguous and consequently recommended that the court
construe it in favor of USX as the insured.

The magistrate judge in reaching her conclusion relied on the
Pennsylvania Supreme Court opinion in J.H. France Refractories Co.
v. Allstate Insurance Co., 626 A.2d 502 (Pa. 1993), for the proposition
that “exposure to asbestos causes immediate ‘bodily injury’ under the
terms of an insurance policy that offers coverage for ‘bodily injury.’”
J.A. at 8. In light of this immediate bodily injury, the magistrate judge
reasoned that because “no one intends to inhale asbestos fibers and
develop asbestosis,” “the injury [therefore] occurs by an accident that
later results in a disease.” J.A. at 13. According to the Report and
Recommendation, this circumstance raises at least a “reasonable
interpretation” that the underlying claims were for “bodily injury by
accident” and thus the Liberty Mutual policy covered USX against
them. J.A. at 11, 13. In view of the magistrate judge’s
recommendation with respect to the meaning of the policy, she
recommended that the court dismiss Count V seeking reformation as
moot. The magistrate judge, however, recommended that the court
grant summary judgment in favor of Liberty Mutual on Count III
because she believed that Liberty Mutual “demonstrated a reasonable
basis for its refusal to defend and indemnify USX,” specifically its
reliance on authority from another jurisdiction in the absence of
applicable precedent from the courts of Pennsylvania. J.A. 17.

Both parties filed timely objections to the magistrate judge’s
Report and Recommendation, following which the district court, after
a de novo review, issued an order on June 27, 2002, which adopted
the Report and Recommendation as the opinion of the court and
dismissed Count V as moot.8 Subsequently, the parties agreed that
Liberty Mutual as a result of the June 27, 2002 order, owed USX

8
Because the district court adopted the magistrate judge’s Report
and Recommendation, we will refer to the adopted opinion as that of the
district court.

7
$2,200,000, subject to Liberty Mutual’s right to appeal, for attorneys’
fees, defense costs, and pre-judgment interest. The court then entered
a final judgment on January 9, 2004, in favor of USX on Counts I, II,
and IV and in favor of Liberty Mutual on Count III.9 The January 9,
2004 judgment included an award of $2,200,000. Thereafter both
parties timely filed notices of appeal.

III. JURISDICTION AND STANDARD OF REVIEW

The district court exercised diversity jurisdiction over this
matter pursuant to 28 U.S.C. § 1332, and we have jurisdiction over
the appeal and cross-appeal under 28 U.S.C. § 1291. We exercise
plenary review of the order granting summary judgment. See
Dilworth v. Metro. Life Ins. Co., 418 F.3d 345, 348 (3d Cir. 2005);
Haugh v. Allstate Ins. Co., 322 F.3d 227, 230 (3d Cir. 2003). We will
affirm an order granting summary judgment if our review reveals that
“there is no genuine issue of material fact and that the moving party is
entitled to judgment as a matter of law.” Fed. R. Civ. P. 56(c). We
view the facts in the light most favorable to the party against whom
summary judgment was entered. See Dilworth, 418 F.3d at 349;
Haugh, 322 F.3d at 230. The parties agree that Pennsylvania law
governs this action.10

IV. DISCUSSION

A. Appeal by Liberty Mutual

9
In its final judgment of January 9, 2004, the district court stated
that “[t]he parties have settled and finally resolved all other claims and
issues between them, except that each has reserved the right to appeal
their respective adverse decision of the Court.” J.A. at 35.
10
We note that USX in its brief asserts that the materials
submitted to Liberty Mutual’s in-house coverage counsel were not
adequate for counsel to know “that the coverage issue was governed by
Pennsylvania law; nor indeed any knowledge as to what law governed
the insured’s demand for indemnity and a defense.” Cross-Appellant’s
br. at 8. We are perplexed by this implicit criticism inasmuch as USX
agrees that Pennsylvania law is applicable here.

8
 In asserting that the district court should have entered
summary judgment in its favor on Counts I, II and IV, rather than in
favor of USX, Liberty Mutual argues that the court erred in
concluding that the policy language at issue was ambiguous. Liberty
Mutual submits that, when viewed in the context in which the parties
made the contract, the only reasonable interpretation of the policy is
that the underlying asbestos-related claims are not claims for “bodily
injury by accident” but instead are claims for “bodily injury by
disease,” to which the thirty-six-month claim limitation period
applies. In particular, Liberty Mutual asserts that the district court’s
analysis ignored a substantial body of Pennsylvania workmen’s
compensation law defining the term “accident” which necessarily
informs the employers’ liability coverage at issue inasmuch as it was
written in a single policy also providing workmen’s compensation
coverage. Of course, in light of the circumstance that the Texas
plaintiffs brought the underlying actions well beyond the expiration of
the thirty-six-month claim limitation period and did not make written
claims within that period, if Liberty Mutual is correct it owes no
duties to USX on the WC/EL policy involved here.

USX counters that the meaning of the disputed policy
language should be ascertained by reference to J.H. France
Refractories and that “the workers’ compensation precedents upon
which Liberty Mutual almost exclusively relies have no relevance.”
Appellee’s br. at 26 (emphases in original). Thus, in USX’s view,
this case involves underlying claims for “bodily injury by accident” to
which the thirty-six-month claim limitation period does not apply.
Our review of the materials submitted and the relevant authorities
leads us to agree with Liberty Mutual.

The district court was, of course, correct to the extent that it
observed that in Pennsylvania a court construes ambiguities in an
insurance policy strictly against the insurer. See, e.g., Selko v. Home
Ins. Co., 139 F.3d 146, 152 n.3 (3d Cir. 1998) (citing Standard
Venetian Blind Co. v. Am. Empire Ins. Co., 469 A.2d 563, 566 (Pa.
1983)). Nevertheless, in Pennsylvania, and no doubt elsewhere,
“[c]lear policy language . . . is to be given effect, and courts should
not torture the language to create ambiguities but should read the
policy provisions to avoid it.” Selko, 139 F.3d at 152 n.3 (internal
citations and quotation marks omitted). In construing policy
language, courts should consider any special usage “[w]here terms are
used in a contract which are known and understood by a particular
class of persons in a certain special or peculiar sense[.]” Sunbeam

9
Corp. v. Liberty Mut. Ins. Co., 781 A.2d 1189, 1193 (Pa. 2001).11

While the terms “disease” and “accident” do not appear
alongside the definitions of “bodily injury by disease” and “bodily
injury by accident,” Liberty Mutual correctly argues that the meaning
of those terms with respect to employers’ liability under Coverage B
in the policy at issue is informed by their usage in the closely related
context of workmen’s compensation claims. Carriers write insurance
for both types of claims to cover claims arising out of employee
workplace injuries.12 Accordingly, as one leading treatise explains,

workers’ compensation is routinely written in
combination with an employer’s liability policy to
provide protection for those situations where worker’s
compensation may not apply and thus avoid a gap in
protection because employee claims subject to
workers’ compensation law are generally excluded in
other types of liability policies.

7B John Allan Applebaum, Insurance Law and Practice § 4571, at 2
(Berdal ed. 1979). Courts of last resort in several states have
observed, consistently with this explanation, that “employers’ liability
insurance is traditionally written in conjunction with workers’
compensation policies.” Producers Dairy Delivery Co. v. Sentry Ins.
Co., 718 P.2d 920, 927 (Cal. 1986); see also Travelers Indem. Co. v.
PCR, Inc., 889 So.2d 779, 784 n.7 (Fla. 2004); Schmidt v. Smith, 713
A.2d 1014, 1017 (N.J. 1998). Such is the case here where the
employers’ liability coverage at issue is part of a WC/EL policy

11
The Pennsylvania Supreme Court explained in Sunbeam that
“[t]he parol evidence rule does not apply in its ordinary strictness where
the existence of a custom or usage to explain the meaning of words in a
writing is concerned,” and that an ambiguity need not be shown before
looking to usage. 781 A.2d at 1193 (citing Restatement (Second) of
Contracts §§ 202(5), 220 cmt. d (1979)). Instead, absent an express
provision to the contrary, “custom or usage, once established, is
considered a part of a contract and binding on the parties though not
mentioned therein, the presumption being that they knew of and
contracted with reference to it.” 781 A.2d at 1193.
12
Even though we refer to “workplace” injuries we are well aware
that some employee injuries are within the scope of workmen’s
compensation laws though they occur away from the workplace.

10
containing a single “Definitions” section applicable to both Coverage
A and Coverage B. Accordingly, although to the best of our
knowledge the Supreme Court of Pennsylvania has not considered the
precise issue before us, we predict that it would look to the substantial
body of workmen’s compensation precedent to inform its construction
of the terms “disease” and “accident” in a related employers’ liability
policy, such as the one involved here.13 After all, it is logical that the
contracting parties would not use the term “accident” in a WC/EL
policy intending the term to have one meaning under Coverage A and
another under Coverage B, when the coverages are written in
conjunction and are set forth in a single document with one set of
definitions.

At the time the parties entered into the policy at issue, the term
“accident” had a special meaning based on its usage in the context of
workmen’s compensation. Inasmuch as the Pennsylvania Workmen’s
Compensation Act (“WCA”), as the legislature originally enacted it in
1915, provided benefits only for injury or death resulting from an
“accident” in the course of employment but did not define “accident,”
the courts fashioned a definition of that term. See Pawlosky v.
Workmen’s Comp. Appeal Bd. (Latrobe Brewing Co.), 525 A.2d
1204, 1208 (Pa. 1987). The courts defined the term “accident” as a
“sudden and unexpected event,” with “[a] sudden event impl[ying] a
distinct happening or occurrence at a particular time.” Loudon v.
H.W. Shaull & Sons, 13 A.2d 129, 130 (Pa. Super. Ct. 1940) (internal
citation and quotation marks omitted). Loudon is instructive because
it involved a claimant who sought compensation after contracting
typhoid from contaminated drinking water. In differentiating between
an “accident” and a “disease,” the court in Loudon adopted the
following language from Matter of Connelly v. Hunt Furniture Co.,
147 N.E. 366, 367 (N.Y. 1925):

Germs may indeed be inhaled through the nose or
mouth or absorbed into the system through the normal
channels of entry. In such cases their inroads will

13
None of the parties or the amici curiae has cited a Pennsylvania
Supreme Court or Superior Court case dealing with the precise issue
before us, and in our research we have not found one. But we are
obliged to predict how the Supreme Court of Pennsylvania would rule
on the issue. See Monaco v. Am. Gen. Assurance Co., 359 F.3d 296,
303 (3d Cir. 2004); Rush v. Scott Specialty Gases, Inc., 113 F.3d 476,
486 (3d Cir. 1997).

11
 seldom, if ever, be assignable to a determinate or single
act, identified in space or time. . . . For this reason as
well as for the reason that absorption is incidental to a
bodily process both natural and normal, their action
presents itself to the mind as a disease and not an
accident.

Id. at 132 (internal citation omitted); see also Ciabattoni v. Birdsboro
Steel Foundry & Mach. Co., 125 A.2d 365, 368 (Pa. 1956) (defining
accident as “a definite happening or occurrence or event of which the
employee is almost invariably aware,” as distinguished from an
occupational disease, which “is latent and insidious and the resultant
disability is often difficult to determine”). Employing this
contemporaneous industry usage of the terms “accident” and
“disease,” we conclude that the only reasonable interpretation of the
term “bodily injury by accident” excludes the underlying claims for
asbestos-related diseases.14

Accordingly, we reject the district court’s contrary conclusion
that the type of injuries involved in the underlying actions “occur[ ] by
an accident that later results in a disease” because “no one intends to
inhale asbestos fibers and develop asbestosis.” J.A. at 13. To us, at
least, it is clear that the district court’s conclusion under the policy at
issue contravenes the usage of the term “accident,” and renders certain
policy provisions essentially meaningless. Most notably, under the
district court’s conclusion the term “bodily injury by disease” would
be practically meaningless inasmuch as nearly every microscopic
injury resulting from indeterminate, generalized exposure to an agent
would be considered a “bodily injury by accident” because no one
intends to be injured. See Riverwood Int’l Corp. v. Employers Ins. of
Wausau, 420 F.3d 378, 383 (5th Cir. 2005); Hubbs v. Anco
Insulations, Inc., 747 So.2d 804, 807-08 (La. Ct. App. 1999).

14
We are mindful that the Pennsylvania legislature has made
revisions to the WCA, including, inter alia, replacement of the term
“accident” with the term “injury.” See Pawlosky, 525 A.2d at 1208-09.
We have considered the revisions and have concluded that they do not
affect our analysis. We also are aware that the legislature has adopted the
Occupational Disease Act, see 77 Pa. Stat. Ann. § 1201 et seq. (West
2002), which includes asbestos-related diseases among its list of
enumerated “occupational diseases,” id. at § 1208. This law, like the
revisions to the WCA, does not affect our analysis.

12
 We also are of the view that the district court’s construction
effectively would read out of the policy the “Definitions” clause
which recites that “[t]he contraction of disease is not an accident
within the meaning of the word ‘accident’ in the term ‘bodily injury
by accident.’” See J.A. at 662. Pennsylvania courts long have
admonished that “contract terms will not be construed in such a
manner so as to render them meaningless,” Girard Trust Bank v. Life
Ins. Co. of N. Am., 364 A.2d 495, 498 (Pa. Super. Ct. 1976), and we
decline to do so here. Lastly, the district court’s construction would
produce an anomalous result in which the term “bodily injury by
accident,” as used by the parties in the WC/EL policy, means one
thing under Coverage A but something else under Coverage B, despite
its inclusion in a single definition section applicable to both.

The decision in J.H. France Refractories, 626 A.2d 502, on
which USX primarily relies, is not germane to the issue before us.
USX asserts that in J.H. France Refractories, “the Pennsylvania
Supreme Court accepted as a scientific fact that exposure to asbestos
causes an immediate bodily injury and that it is that injury that leads
to and causes the subsequent asbestos-related disease.” Appellee’s br.
at 25 (emphases in original).

The issue here, however, is not whether asbestos exposure
causes an injury, a proposition that Liberty Mutual does not dispute,
but is instead whether the underlying claims for asbestos-related
injuries are claims for “bodily injury by accident” or “bodily injury by
disease.” J.H. France Refractories does not provide guidance on this
question because in that case the Pennsylvania Supreme Court
addressed coverage under commercial general liability insurance
policies, construing the terms “bodily injury” and “occurrence” rather
than the terms at issue here.15 Unlike workmen’s compensation
policies, general liability insurance policies are not written in
conjunction with employers’ liability policies. Indeed, while
workmen’s compensation policies and employers’ liability policies
both address claims arising out of employee workplace injuries,
commercial general liability policies generally exclude injuries to

15
Indeed, notwithstanding the district court’s grant of partial
summary judgment in favor of USX, it recognized that J.H. France
Refractories was not controlling as it “[did] not hold that the inhalation
of asbestos fibers is an immediate accidental injury, but only that such
exposure constitutes an immediate bodily injury.” J.A. at 16 (internal
quotation marks omitted).

13
some, if not all, employees from coverage. See 9A Lee R. Russ &
Thomas F. Segalla, Couch on Insurance § 129:10 (3d ed. 2005).
Therefore, inasmuch as J.H. France Refractories involved a
commercial general liability policy and construed terms materially
different than those at issue here, the district court’s and USX’s
reliance on that case is misplaced.

Finally, on the policy construction issue we observe that our
conclusion is consistent with that reached by other courts. See
Riverwood, 420 F.3d at 378; Hubbs, 747 So.2d at 804. In Riverwood
and Hubbs the courts concluded that terms identical to those here in
standard employer’s liability policies were subject to only one
reasonable interpretation– that an asbestos-related injury is not a
“bodily injury by accident” under the policies. 420 F.3d at 382; 747
So.2d at 807-08. The courts agreed that to find otherwise “would be
to subsume the definition of bodily injury by disease into the
definition of bodily injury by accident.” Hubbs, 747 So.2d at 807-08;
Riverwood, 420 F.3d at 383.16 We realize that those cases are not
binding on the Pennsylvania courts nor on this court when applying
Pennsylvania law. Nevertheless we find their construction of identical
terms in standard employers’ liability policies to be persuasive and to
comport with our understanding of the plain meaning of the policy at
issue here.

B. Cross-appeal by USX

As a preliminary matter on the cross-appeal, we address
Liberty Mutual’s pending motion to strike portions of what USX
styles as its “Reply Brief on Behalf of Appellee/Cross-Appellant,
USX Corporation.” Specifically, Liberty Mutual moved to strike
those portions of the brief that address issues related to Liberty
Mutual’s appeal but are outside of the scope of USX’s cross-appeal.
Liberty Mutual’s motion is meritorious as the inclusion of these
portions in the brief contravenes Fed. R. App. P. 28(c), which
provides that “[a]n appellee who cross-appealed may file a brief in
reply to the appellant’s response to the issues presented by the cross-
appeal.” Moreover, Rule 28(c) does not allow the cross-appellant to
use its reply brief as a sur-reply to the appellant’s opening brief. See

16
We note further that the Court of Appeals for the Fifth Circuit
in Riverwood similarly looked to the applicable body of state workmen’s
compensation case law to discern the industry usage of the term
“accident.” See 420 F.3d at 383.

14
Casas v. Am. Airlines, Inc., 304 F.3d 517, 526 (5th Cir. 2002); Echo
Acceptance Corp. v. Household Retail Servs., Inc., 267 F.3d 1068,
1092 (10th Cir. 2001) (“If the latter portion of [cross-appellant’s]
‘Reply Brief’ had been submitted to the Clerk of Court under the
correct title, ‘Appellee’s Sur-Reply Brief,’ it would not have been
accepted for filing.”). Because USX’s opposition to the motion to
strike lacks merit, we grant Liberty Mutual’s motion to strike those
portions of the reply brief related to issues that USX did not appeal.17

Turning to the merits of the cross-appeal, we are concerned
only with the district court’s grant of summary judgment in favor of
Liberty Mutual on USX’s claim for bad faith denial of coverage
(Count III). As the foregoing discussion of Liberty Mutual’s appeal
portends, we will affirm the grant of summary judgment in favor of
Liberty Mutual on this claim because USX’s bad faith claim
necessarily fails in light of our determination that Liberty Mutual
correctly concluded that there was no potential coverage under the
policy. See The Frog, Switch & Mfg. Co. v. Travelers Ins. Co., 193
F.3d 742, 751 n.9 (3d Cir. 1999) (affirming district court which held
that, under Pennsylvania law, “bad faith claims cannot survive a
determination that there was no duty to defend, because the court’s
determination that there was no potential coverage means that the

17
We have written at length on this briefing matter to give
guidance to the bar. While there is no doubt but that USX legitimately
filed its cross-appeal, we point out that the situation here is similar to
that when an appellee files an unnecessary cross-appeal when it seeks
only an affirmance of the district court order, see, e.g., Kontakis v.
Beyer, 19 F.3d 110, 112 (3d Cir. 1994), and thereby sets up a situation
in which it inappropriately can file an additional brief. In that situation
we may dismiss the cross-appeal. See, e.g., Rite Aid of Pa. v. Houstoun,
171 F.3d 842, 849 (3d Cir. 1999).

USX asserts that it was necessary for it to include the materials
constituting a sur-reply in its reply brief on its cross-appeal because it
faced the situation of having to respond to Liberty Mutual and its
“captive Amici” by whom USX claims to have been “triple teamed.”
Cross-Appellee’s Opp’n at 3-4. This excuse does not impress us for if
USX wanted to submit a brief not in accordance with Fed. R. App. P.
28(c), its appropriate course would have been to seek leave of this court,
as it did with its previous unsuccessful requests to exceed page
limitations in responding to Liberty Mutual’s appeal.

15
insurer had good cause to refuse to defend”).18

V. CONCLUSION

For the foregoing reasons, we will reverse the order granting
partial summary judgment in favor of USX entered on June 27, 2002,
and will reverse the final judgment in its favor entered on January 9,
2004, including the $2,200,000 monetary award, and will affirm the
order granting partial summary judgment and final judgment in favor
of Liberty Mutual. In addition, inasmuch as Liberty Mutual was
entitled to a complete summary judgment on its motion in the district
court, we will remand the case to the district court for entry of a
summary judgment in its favor on Counts I, II, and IV of the
complaint. See Coar v. Kazimar, 990 F.2d 1413, 1416 (3d Cir. 1993).

18
USX cites Britamco Underwriters, Inc., v. C.J.H. Inc., 845 F.
Supp. 1090, 1093-94 (E.D. Pa.), aff’d, 37 F.3d 1485 (3d Cir. 1994)
(table), for the proposition that an insurer’s duty to defend may be
broader than its duty to indemnify. We do not doubt this proposition,
but, as Britamco notes, the duty to defend ends if “the insurer can
confine the claim to recovery that is not within the scope of the
coverage.” Id. In this case Liberty Mutual has done exactly that, and
therefore it has neither the duty to defend nor the duty to indemnify
USX.

16