Consolidated Rail Corp. v. Ace Property & Casualty

J-A17045-16

2018 PA Super 68

CONSOLIDATED RAIL CORPORATION IN THE SUPERIOR COURT
OF
PENNSYLVANIA
Appellant

v.

ACE PROPERTY & CASUALTY
INSURANCE CO. (FORMERLY AETNA
INS. CO.), ALLIANZ GLOBAL RISKS U.S.
INSURANCE CO. (FORMERLY ALLIANZ
INS. CO.), ALLIANZ UNDERWRITERS
INSURANCE CO., ALLSTATE INSURANCE
CO. (AS SUCCESSOR IN INTEREST TO
NORTHBROOK EXCESS & SURPLUS INS.
CO. A/K/A NORTHBROOK INS. CO.),
AMERICAN HOME ASSURANCE CO.
(AMERICAN INTERNATIONAL GROUP),
AMERICAN MOTORISTS INSURANCE CO.
(KEMPER), AVIVA INSURANCE CO. OF
CANADA (U.S. BRANCH), (FORMERLY
GAN GENERAL INS. CO. (FORMERLY
SIMCOE & ERIE GENERAL INS. CO.)),
BIRMINGHAM FIRE INSURANCE CO. OF
PA. (AMERICAN INTERNATIONAL
GROUP), BRITAMCO UNDERWRITERS,
INC. C/O DEVONSHIRE GROUP,
CENTURY INDEMNITY CO. (SUCCESSOR
IN INTEREST TO CIGNA SPECIALTY INS.
CO. (FORMERLY CALIFORNIA UNION
INSURANCE CO.) AND AS SUCCESSOR
TO CCI INSURANCE CO., SUCCESSOR
TO INSURANCE CO. OF NORTH
AMERICA), CONTINENTAL INSURANCE
CO. (IN ITS OWN RIGHT AND AS
SUCCESSOR IN INTEREST TO HARBOR
INSURANCE CO.) (CNA INSURANCE
COS.), EMPLOYERS MUTUAL CASUALTY
CO. (EMC INSURANCE COS.),
EMPLOYERS INSURANCE OF WAUSAU
(FORMERLY EMPLOYERS MUTUAL OF
WAUSAU), EVANSTON INSURANCE CO.,
J-A17045-16

EVEREST REINSURANCE CO. (FORMERLY
PRUDENTIAL REINSURANCE CO.),
FEDERAL INSURANCE CO. (CHUBB
GROUP OF INS. COS.), FIREMAN’S FUND
INSURANCE CO., FIRST STATE
INSURANCE CO. (HARTFORD
INSURANCE GROUP), GRANITE STATE
INSURANCE CO. (AMERICAN
INTERNATIONAL GROUP), HARTFORD
ACCIDENT & INDEMNITY CO.
(HARTFORD INSURANCE GROUP),
HUDSON INSURANCE CO., INSCO C/O
DEVONSHIRE GROUP, INSURANCE
COMPANY OF THE STATE OF
PENNSYLVANIA (AMERICAN
INTERNATIONAL GROUP), LANDMARK
INSURANCE CO. (AMERICAN
INTERNATIONAL GROUP), LEXINGTON
INSURANCE CO. (AMERICAN
INTERNATIONAL GROUP), LIBERTY
MUTUAL INSURANCE CO., MIDSTATES
REINSURANCE CORP. (FORMERY MEAD
REINSURANCE CORP.), NATIONAL
CASUALTY CO., NATIONAL UNION FIRE
INSURANCE CO. OF PITTSBURGH, PA
(AMERICAN INTERNATIONAL GROUP),
NORTHWESTERN NATIONAL INSURANCE
CO. (FORMERLY BELLEFONTE
UNDERWRITERS INSURANCE CO.), OLD
REPUBLIC INSURANCE CO., PACIFIC
INSURANCE CO. (CNA INSURANCE
COS.), REPUBLIC INSURANCE CO.,
ROYAL INSURANCE CO. OF AMERICA
(FORMERLY ROYAL GLOBE INS. CO.)
(ROYAL & SUN ALLIANCE INSURANCE
GROUP), SENTRY INSURANCE GROUP
(AS ASSUMPTIVE REINSURER OF GREAT
SOUTHWEST FIRE INS. CO. AND GREAT
SOUTHWEST SURPLUS LINES INS. CO.),
ST. PAUL FIRE & MARINE INSURANCE
CO. (ST. PAUL TRAVELERS
COMPANIES), ST PAUL SURPLUS LINES
INSURANCE CO. (ST. PAUL TRAVELERS
COMPANIES), STONEWALL INSURANCE

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J-A17045-16

CO., TIG INSURANCE CO. (AS
SUCCESSOR TO INTERNATIONAL INS.
CO. (FORMERLY INTERNATIONAL
SURPLUS LINES INS. CO.)) (FAIRFAX
FINANCIAL (USA) GROUP), TIG PREMIER
INSURANCE CO. (FORMERLY
TRANSAMERICA INS. CO.) (FAIRFAX
FINANCIAL (USA) GROUP), TRAVELERS
CASUALTY AND SURETY CO. (FORMERLY
ATENA CASUALTY AND SURETY CO.)
(ST. PAUL TRAVELERS COMPANIES),
TRAVELERS INDEMNITY CO.(ST. PAUL
TRAVELERS COMPANIES), TWIN CITY
FIRE INSURANCE CO. (HARTFORD
INSURANCE GROUP), UNIONE ITALIANA
REINSURANCE CO. OF AMERICA, INC.,
UTICA MUTUAL INSURANCE CO.,
ZURICH AMERICAN INSURANCE CO.
(FORMERLY ZURICH INSURANCE CO.)
AND CERTAIN LONDON MARKET
INSURANCE COMPANIES AND
PENNSYLVANIA PROPERTY & CASUALTY
INSURANCE GUARANTY ASSOCIATION
(FORMERLY PENNSYLVANIA INSURANCE
GUARANTY ASSOCIATION)

Appellees No. 1376 EDA 2015

Appeal from the Judgment Entered April 8, 2015
In the Court of Common Pleas of Philadelphia County
Civil Division at No(s): 002638 Civil Action Sept. Term, 2004

BEFORE: GANTMAN, P.J., LAZARUS, J., and PLATT, J.*

OPINION BY GANTMAN, P.J.: FILED MARCH 23, 2018

Appellant, Consolidated Rail Corporation (“Conrail”), appeals from the

summary judgment entered in the Philadelphia County Court of Common

____________________________________________

* Retired Senior Judge assigned to the Superior Court.

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J-A17045-16

Pleas, in favor of Stonewall Insurance Company (“Stonewall”), Continental

Insurance Company (“Continental”), and Lloyd Italico & L’Ancora (“Lloyd”).

For the following reasons, we affirm in part, reverse in part, and remand for

further proceedings.

This case involves Conrail’s efforts to obtain indemnification for

contamination remediation, clean-up costs, and other expenses related to

toxic spills and releases at various geographic sites. The trial court set forth

the relevant facts regarding the Elkhart site as follows:

From 1976 through 1999, Conrail owned a large
classification yard for freight cars in Indiana. Beginning in
1986, the [United States Environmental Protection Agency
(“EPA”)] found significant amounts of [trichloroethene
(“TCE”)] and [carbon tetrachloride (“CCl4”)] in portions of
Conrail’s property and in the groundwater under a large
number of neighboring properties.

Conrail admits that [t]here is only one incident that resulted
in carbon tetrachloride contamination at Elkhart—a release
of [CCl4] in the vicinity of track number 69…in May 1968[,]
while Penn Central was operating Elkhart…eight years
before Conrail began its own operations at Elkhart.

Conrail also claims that [t]he principal source of the TCE
contamination at Elkhart was a release of TCE in the Track
65-66 area of the rail yard. The TCE emanating from the
rail yard has reached the drag strip and the St. Joseph River
on the northern border of the site. The EPA’s expert, Gary
Chirlin, opined that [s]ubstantial TCE contamination exists
over the entire aquifer thickness…within this source area;
this is consistent with a local release of sufficient magnitude
that separate phase TCE [a dense non-aqueous phase liquid
(“DNAPL”)] penetrated nearly to bedrock. Conrail’s lead
environmental consultant at the Elkhart [s]ite, Miranda
Menzies, testified that the nature of the contamination at
Tracks 65-66—i.e., a large release of contaminants in
undissolved form that sank through the soil into the

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aquifer—is consistent with a large spill from a tank car, as
opposed to multiple small spills [which] would remain close
to the soil surface. While the exact date of this release [of
TCE] is unknown, it likely took place before 1976.

In addition, Conrail notes that its employees told the EPA
that solvents were used as degreasers at the car shop, then
poured onto concrete pads and hosed down; they did not
specify the year(s) in which this occurred or the types of
solvent(s) used.

Through September 2012, Conrail incurred over $15 million
in remediation costs, approximately $3.8 million in
government payments, and more than $2 million in defense
costs in connection with the Elkhart [s]ite. Remediation is
ongoing and Conrail continues to incur additional costs with
respect to the Elkhart [s]ite.

(Trial Court Opinion, filed October 28, 2014, at 1-2) (internal quotation marks

and footnotes omitted). The trial court set forth the relevant facts regarding

the Hollidaysburg, Douglasville, Conway, Beacon, and Paoli sites as follows:

The Hollidaysburg, Pennsylvania, [s]ite was owned by
Conrail from 1976 until 1999. It was a car shop, which was
used to build, rebuild, and repair railway cars, and a
reclamation plant, which was used to repair railcars and
components, to recover parts and equipment from railcars,
and to recycle rail equipment and materials that could no
longer be used.

In 1997, the [Pennsylvania Department of Environmental
Protection (“PaDEP”)] and Conrail discovered over 3,500
drums of waste material buried on the [s]ite. It appears
that Conrail’s predecessors buried the drums. In addition,
there was apparently spilling and/or leaking of hazardous
waste from [Conrail’s] drum crusher and its catch basin onto
the adjacent ground.

[Polychlorinated biphenyl (“PCB”)] and lead contamination
was found in the soil at the Hollidaysburg [s]ite, but not at
any neighboring sites. Arsenic contamination was also a
problem at the site. In addition, [n]aphthalene and various

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J-A17045-16

metals were present at levels exceeding established
maximum allowable levels in the groundwater at the [s]ite,
but Conrail’s environmental consultants concluded that the
contaminated groundwater was not migrating off-site.

The PaDEP ordered Conrail to excavate and remove the
drums. Conrail was also ordered to install a control system
to prevent off-site migration of surface water, submit a plan
to control wind dispersion of contamination, and submit a
groundwater monitoring plan to determine whether any
contaminated groundwater was migrating off-site. Conrail
promptly undertook the remediation required by [the
PaDEP’s] Administrative Order, which included the
performance of groundwater flow and usage studies; the
testing and monitoring of groundwater; the performance of
an ecological assessment of the Beaverdam and Frankstown
branches of the Juniata River; and the investigation of
potential contamination at other locations at the [s]ite.

In connection with the Hollidaysburg [s]ite, Conrail paid
$4,999,806.60 in remediation costs and $2,828,740.45 in
defense costs which it seeks to recover [through
indemnification]. It also paid $4.1 million in governmental
fines and penalties for which it seeks coverage.

* * *

The Douglasville Disposal [s]ite is located in Pennsylvania.
It was never owned or operated by Conrail. It was operated
by Berks Associates as a waste oil recycling plant. Between
1976 when Conrail came into being and 1985 when waste
oil processing ceased at the Douglassville [s]ite, Conrail sent
its waste oil to be processed there, as did many other
entities. At least one Conrail agent testified to the effect
that Conrail contracted with Berks Associates to safely
process and recycle its waste oil, and to do so in compliance
with all applicable environmental regulations.

In the 1980s, the EPA investigated the [s]ite and discovered
a panoply of contaminants, including [volatile organic
compounds (“VOCs”)], PCBs, [polycyclic aromatic
hydrocarbons (“PAHs”)], and lead in the soil, ground and
surface water, which had emanated from [ten] different
source areas of contamination at the [s]ite. The

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contamination was the result of Berks Associates’ waste
storage and disposal methods, including disposing of it in
lagoons, landfarming it, and depositing filter cakes, as well
as leaks and spills resulting from Berks’ recycling
operations. There were also serious risks [of further
contamination] arising from Berks’ abandoned processing
facility.

Litigation and remediation took place over the next [ten] or
more years. In 2001, Conrail and other potentially
responsible parties entered into agreements regarding
payment of their respective shares of the remediation costs.
Conrail claims it paid $5,983,997.95 in such costs and
incurred $1,313,053.02 in defense costs for both of which it
seeks [indemnification]. Additional costs may yet be
incurred by Conrail.

* * *

The Conway rail yard is located in western Pennsylvania. A
creek, Crows Run, flows through a stone and concrete
culvert under the rail yard. Upon exiting the culvert, Crows
Run flows approximately 200 feet before joining the Ohio
River. Thirty-eight storm water outfalls and drains intersect
the rail yard and discharge into the Ohio River or into Crows
Run along the culvert wall. Conrail operated Conway from
1976 until 1999.

[C]ertain areas at the Conway rail yard were contaminated
with oil [as a result of releases occurring] both before and
after April 1, 1976, [when Conrail assumed control of the
site. The oil] leached and migrated through the soil and was
able to enter Crows Run by way of the Conway drainage
system, as well as from groundwater seepage through the
culvert side wall.

Two documented oil releases occurred at Conway while
Conrail was operating there. The first occurred on or around
September 29, 1977, and resulted from a spill that made its
way into the Ohio River through a sewer outfall. The release
of oil appears to have continued unabated until
approximately October 7, 1977. Although Conrail was never
able to confirm the source of the spill, it was suspected that
the discharge was caused when part of the wastewater

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J-A17045-16

treatment facility was temporarily shut down by a contractor
hired to clean out sewer lines at the rail yard.

The second spill occurred in December 1979[,] when an
underground fueling pipe separated at a joint, causing the
release of oil directly into the ground (as opposed to directly
into Crows Run) near a building in the vicinity of Crows Run.
Approximately 25,000 gallons of oil [were] recovered from
Crows Run during and immediately after the spill; the
quantity of oil that was released from the pipeline but stayed
in the ground and was not [immediately] released to Crows
Run or the river is unknown. Although the spill was
originally thought to have occurred because of a ruptured
pipeline, the actual source of the spill was identified on
December 31, 1979[,] as a separated pipeline and was
repaired by January 2, 1980. Booms and other recovery
efforts were implemented to remove oil from Crows Run.

There were also two, non-oil, chemical spills at Conway, one
of styrene monomer in 1984[,] and one of carbon disulfide
in 1985.

Conrail admits that it knew about the existing oil
contamination when it assumed control of Conway, but
denies that it knew until the 1990s that it would be liable for
millions of dollars in remediation costs with respect to the
[s]ite. Conrail seeks coverage relating to the remediation
of diesel fuel and lubricant oil, as well as styrene and carbon
disulfide, from the ground and subsurface of the rail yard,
as well as from the groundwater, Crows Run, and the Ohio
River.

Through December 2012, Conrail has incurred over $14
million in remediation costs, almost $1.2 million in
government payments to the Commonwealth of
Pennsylvania and the Borough of Conway, and more than
$2 million in defense costs. Conrail continues to incur
additional remediation costs.

* * *

The Beacon Park rail yard is located in Massachusetts and
was operated by Conrail from 1976 through 1999. The rail
yard is bisected by the Massachusetts Turnpike, so that it

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comprises two distinct units. Portions of both units are
contaminated with [light non-aqueous phase liquids
(“LNAPLs”)], primarily oil and diesel fuel.

[T]he first area of contamination at the Beacon Park [s]ite
is known as the “Charles River Chamber” area and is located
near the diesel servicing facility in the loop track area. The
Charles River Chamber is a collection point for several storm
sewers. LNAPL in the surrounding groundwater entered the
chamber through cracks and fissures in the sewer system,
often as the result of heavy rains. The sources of this
contamination are the various historical releases at the
Beacon Park [s]ite as well as the diesel servicing area and
the lube oil tank area west of the chamber, all of which
migrated to the area surrounding the chamber.

The second area of contamination is located in the
classification yard section of Beacon Park and is known as
the “Control Tower” area. Contamination at the Control
Tower area consists of a layer of LNAPL on the water table
beneath the Turnpike and the northern portion of the rail
yard. When precipitation increased the height of the water
table, the oil would infiltrate a storm drain running through
this area and flow into the Charles River.

Conrail knew, at the time that it took over operations of the
Beacon Park rail yard, that there was contamination [there],
and that an EPA Administrative Order had been issued
regarding contamination at Beacon Park on March 1, 1976….
Conrail [also] knew, in August 1976, that it would be
responsible for complying with an order issued by the
Massachusetts Division of Water Pollution Control. Once
Conrail completed the work required by these two orders,
however, [Conrail claims] it had no reason to believe that it
would be responsible for further remediation of the [s]ite.
Conrail denies that it was aware in 1976, or at any other
time during the period when [its insurers] issued policies,
[that subsequent] remediation would approach the level of
coverage provided by [its insurers’ p]olicies.

There is evidence that at least two spills occurred [in the
Charles River Chamber area after Conrail assumed
operations of the rail yard]: a spill of approximately 2,000
gallons of fuel reported to Conrail on November 1, 1981,

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and a spill of approximately 800 gallons on or about August
9, 1982.

With respect to the 1981 leak, the EPA determined that oil
discharg[ing] from Conrail’s corroded underground [two
inch] pipe [entered] into surrounding earth, leached through
the ground and groundwater into a storm conduit, flowed
through the conduit to a junction box, and spilled through
two culverts from the junction box to the Charles River.
[C]ontamination from the pipe leak reached the Charles
River Chamber area of Beacon Park. The leak occurred for
[eight] days until Conrail located its source and capped the
pipe.

[N]o identifiable release or source of the contamination in
the Control Tower area of the yard was ever identified.

Conrail seeks coverage here for $5,388,264.76 in
remediation costs and $352,101.49 in defense costs.
Conrail dropped its claim for approximately $2.5 million in
government penalties that it paid.

* * *

The Paoli [s]ite was a rail yard and car shop that Conrail
operated in Pennsylvania from 1976 through 1982, and
which was operated by [the Southeastern Pennsylvania
Transportation Authority (“SEPTA”)] thereafter. [F]rom the
early 1950s, railcars using transformer oil that contained
PCBs were repaired and maintained at the Paoli rail yard….
[F]or most of the period before April 1, 1976, the hazards
of PCBs were unknown and…from an environmental
standpoint the PCB-containing transformer fluid was treated
similarly to other oils. … [R]eleases of PCB-containing fluid
onto the ground occurred during Conrail’s and SEPTA’s
occupancy at the site, including some releases during
maintenance operations.

[A]fter [Conrail] assumed operations at Paoli, federal and
state regulations began to require that PCBs be treated as
hazardous substances and Conrail’s own internal policies
began to require that PCBs be treated as a hazardous
substance soon thereafter. [As a result,] there was a
significant decrease in the incidence of PCB discharges

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during the operations conducted by Conrail and…known
spills were commonly cleaned up promptly.

However, on at least [twenty] different occasions between
1979 and 1985, PCBs spilled from railcars at the Paoli [s]ite.
Conrail admits that the [railcar] transformers were designed
to release PCB-containing fluid in the event of excessive
pressure, but Conrail denies that th[is] “burping” of the
transformers was routine or that it was the exclusive source
of PCB releases into the ground at Paoli. Conrail [also]
admits that leaks occurred from time to time from faulty
gaskets or eroded and fractured sight glass on some cars,
but denies that such leaks occurred frequently.

Conrail seeks $12,766,859.05 in indemnity costs and
$5,215,407.74 in defense costs…. Some of those costs were
incurred by SEPTA, which Conrail claims is an additional
insured under the [p]olicies.

(Trial Court Opinion, filed October 28, 2014, at 1-11) (footnotes and

some internal quotation marks omitted). The trial court set forth the

relevant facts regarding the Lloyd principal-agent relationship as

follows:

[Conrail] claims that [Lloyd] issued a $1,000,000 Umbrella
Excess Liability [p]olicy to Conrail for the April 1, 1978
through April 1, 1979 policy period. [Lloyd] denies that it
issued any such policy to Conrail. Due to the passage of
time ([thirty-six] years), many relevant records have been
lost or destroyed, memories have dimmed, and witnesses
can no longer be found, so the court must determine which
party must bear the consequences of this lack of evidence.

* * *

In support of its claim that [Lloyd] issued an insurance
contract to Conrail, Conrail proffers a single page that
purports to be an “Umbrella Excess Liability Policy Issued By
[Lloyd]” (the “[Lloyd p]olicy”). It is signed by “Joseph F.
Ambriano” on behalf of “PLAR GROUP.” There is also a
second page that purports to be “Endorsement No. 1” to the

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[Lloyd p]olicy, which increases the coverage provided by the
[p]olicy from $500,000 to $1,000,000. That Endorsement
is signed by “R.A. Browing” on behalf of the “Independence
Marine Group.” A third page purports to be “Endorsement
No. 2” to the [p]olicy. It sets forth a computation of the
earned premium based on Conrail’s revenues during the
[p]olicy year, which results in an additional premium
payment due. Endorsement No. 2 was issued in July 1979,
after the [p]olicy period ended, and is signed “Richard H.
Byron for Plar.”

Through discovery, Conrail has established that, at the time
this transaction allegedly occurred, the following
relationships existed:

1. Conrail’s broker was Marsh & McLennan (“Marsh”)
in New York, New York.
2. Marsh worked with a sub-broker East West
International (“EWI”) in Geneva, Switzerland.
3. EWI negotiated with Mr. Ambriano of Davis,
Dorland & Co. (“Davis Dorland”) in New York, New
York.
4. Mr. Ambriano and George B. McNeill International
had some authority to act on behalf of the Pool
Latino Americano de Reaseguros (“PLAR”) in
Panama.
5. [Lloyd] was a member of PLAR. In [February
1977], [Lloyd] expressly authorized PLAR’s
Administrator, Estudio Consultivo De Seguros S.A.
“to accept shares in Reinsurance transactions” on
behalf of [Lloyd] up to a limit of $10,000.

* * *

Conrail has not been able to discover any document giving
PLAR or Mr. Ambriano express authority to bind [Lloyd] with
respect to the issuance of excess policies in the amount of
[$500,000] such as the one at issue here. Instead, the
evidence shows only that PLAR’s and thereby Mr.
Ambriano’s, express authority to act on behalf of [Lloyd]
was limited to reinsurance policies up to $10,000.

Conrail [also] obtained an affidavit from Mr. Ambriano, who
stated as follows with respect to the [Lloyd p]olicy:

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J-A17045-16

I do not recognize the policy number or the form of
such number. I have no recollection of signing this
document. However, the signature that appears on
[it] is a photocopy of my signature.

Although I have no specific recollection of signing [it]
or the 1978 transaction to which it refers
approximately [thirty-six] years ago, I recall that
[Lloyd] was a member of PLAR and I wrote business
on behalf of PLAR. I understood I was authorized to
sign [it] in May 1978. I would not have signed [it] if
I did not believe I was authorized by PLAR to sign it
on behalf of [Lloyd].

* * *

(Trial Court Opinion, filed December 30, 2014, at 1-4) (footnotes omitted).

Procedurally, Conrail initiated this action in 2004 against fifty-five

insurers; since then, only Stonewall, Continental, and Lloyd remain in the case

as Appellees in this appeal. On October 6, 2010, Lloyd filed preliminary

objections to Conrail’s complaint, and on April 29, 2011, Lloyd filed a

memorandum of law in support of its preliminary objections, claiming it did

not authorize the insurance policy to Conrail. Following briefing and oral

argument, the trial court sustained Lloyd’s preliminary objections and

dismissed Conrail’s complaint against Lloyd on February 21, 2012. On

February 6, 2013, the court reconsidered its previous ruling on Lloyd’s

preliminary objections and overruled them. On March 25, 2013, Stonewall

and Continental filed motions for summary judgment, and Conrail filed cross-

motions for summary judgment. The court issued an opinion, on November

13, 2013, interpreting the “Operations Clause” of Stonewall’s and

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Continental’s insurance policy. The court determined that the insurance policy

required the insurers to reimburse Conrail only for the damages arising out of

an “occurrence” (i.e., environmental contamination) that was caused by or

grew out of Conrail’s operations at the sites. In other words, the policies

provided coverage to Conrail only if Conrail could prove it had discharged

some of the pollutants during the policy terms for which it had incurred

liability. Lloyd filed a motion for summary judgment on June 16, 2014,

arguing it did not authorize the policy Conrail proffered against Lloyd.

On October 28, 2014, the court applied its ruling of the “Operations

Clause” to the sites and granted Continental’s motion for summary judgment

in part and denied it in part. The court determined facts for some of the sites

indicated that pollutants had been discharged before Conrail took over

operations. On that same day, the court granted summary judgment in favor

of Stonewall because the court found pollutants had been discharged before

Conrail began to operate at the site Stonewall insured. On December 30,

2014, the court granted summary judgment in favor of Lloyd, finding Lloyd

did not authorize Conrail’s policy. The court dismissed as moot Lloyd’s

remaining motions for summary judgment and Conrail’s cross motion for

summary judgment. Conrail and Continental filed a stipulation for entry of

final judgment on April 6, 2015. On April 8, 2015, the court entered an order

discontinuing without prejudice Conrail’s claims regarding the twenty-seven

non-focus sites listed in Conrail’s complaint and entering final judgment in

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favor of the Insurers and against Conrail as to all remaining claims and parties.

Conrail timely filed a notice of appeal on April 23, 2015. The court, on April

28, 2015, ordered Conrail to file a concise statement of errors complained of

on appeal pursuant to Pa.R.A.P. 1925(b), and Conrail timely complied on May

22, 2015.

Conrail raises three issues for our review:

WHETHER LIABILITY INSURANCE POLICIES
UNAMBIGUOUSLY PRECLUDE COVERAGE FOR CONRAIL’S
POLLUTION-RELATED LIABILITIES UNLESS CONRAIL CAN
PROVE ITSELF GUILTY OF DISCHARGING SOME OF THE
POLLUTANTS…[?]

WHETHER (I) CONRAIL HAD THE BURDEN TO PROVE THAT
IT POLLUTED THIRD-PARTY PROPERTY TO ESCAPE
APPLICATION OF THE INSURANCE POLICIES’ OWN
PROPERTY EXCLUSION TO ITS ENVIRONMENTAL LIABILITY
AT THE HOLLIDAYSBURG SITE, AND (II) CONRAIL FAILED
TO SATISFY THIS BURDEN DESPITE EVIDENCE THAT IT
HAD CONTAMINATED GROUNDWATER UNDER THE SITE
AND WAS LIABLE FOR ON-SITE REMEDIATION DESIGNED
TO PREVENT THREATENED OFF-SITE DAMAGE[?]

WHETHER CONRAIL FAILED AS A MATTER OF LAW TO
PROVE THE EXISTENCE OF AN INSURANCE POLICY
ALLEGEDLY ISSUED BY THE ITALIAN INSURER [LLOYD],
DESPITE EVIDENCE FROM WHICH A JURY COULD FIND (I)
THAT THE AGENT WHO SIGNED THE POLICY HAD ACTUAL
OR APPARENT AUTHORITY TO ACT FOR [LLOYD], OR (II)
THAT [LLOYD] SHOULD BE ESTOPPED FROM DENYING THE
AGENT’S AUTHORITY[?]

(Conrail’s Brief at 3-4) (footnote omitted).

Conrail argues the insurance policy language is ambiguous and can be

reasonably read to provide coverage for Conrail’s liability for preexisting

contamination, regardless of whether Conrail actively contributed to that

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contamination. As a result, Conrail contends the policy language should be

construed against the drafter to effect the dominant purpose of the policy,

which is to provide indemnity to Conrail. Specifically, Conrail offers three

interpretations of the policy language to provide liability coverage. First,

Conrail disagrees with the court’s definition of an “occurrence” because it

ignores the phrase “all operations incidental thereto,” which is not specifically

defined in the policy but is ordinarily defined by standard dictionaries as

“related to.” Had the trial court given effect to the phrase “all operations

incidental thereto,” Conrail suggests the court could have reasonably

interpreted the policy to cover “occurrences” as related to Conrail’s operations,

because Conrail is engaged in the same operations as the previous site

operators, conducted operations on the same properties, and used many of

the same equipment and personnel in those operations.

Second, Conrail maintains the trial court should have considered the

term “occurrence” under the more expansive policy language of “continuous

or repeated exposure to conditions which cause injury or damage during the

term of the policy.” If the trial court had considered the term “occurrence” as

a continuous and repeated exposure caused by the initial discharge event,

Conrail posits the court could have concluded that the migration of previously

discharged contaminants into and through the groundwater and off the site

was covered by the policy. Conrail submits the policy should cover the

continuous and repeated exposure occurring as a result of the initial event;

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J-A17045-16

otherwise, the language “caused by or grew out of” is superfluous. Relying

on a Kansas federal court case, Conrail claims the phrase “grew out of” should

mean “associated with.” Based on Conrail’s interpretations of these applicable

terms and phrases, Conrail reasons the preexisting contamination that

evolved and expanded by migration on and off the site are “occurrences”

which continued to happen during Conrail’s operations; and the policy

language lends itself to this construction to provide coverage for Conrail’s

liability.

Third, Conrail avers the language, “caused by or growing out of the

insured’s operations,” when read in the context of the policy as a whole, could

reasonably be interpreted to permit broader coverage than just for a single

event because the phrase “caused by or grew out of” modifies both

“occurrence” and the larger promise of the policy to provide indemnification

for the insured’s liability. Under this broader interpretation, Conrail suggests

liability can arise not only out of a triggering event but also the triggering

event can stretch into a continued or repeated exposure to migrating

contaminants. Because Conrail is liable for the preexisting contamination at

the sites, under this broader policy interpretation, Conrail insists it should be

covered by the relevant policies.

For its second issue, Conrail argues Continental should indemnify Conrail

for the Hollidaysburg site remediation because the contaminated groundwater

found at the site constitutes damage to third-party property. Conrail reasons

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J-A17045-16

groundwater belongs to the Commonwealth under Pennsylvania law, not just

to Conrail, so the contaminated groundwater is not Conrail’s “owned property”

within the meaning of the “Own Property Exclusion,” thus liability coverage

under the policy is available. Conrail alternatively posits the trial court

incorrectly placed the burden of proving the “Own Property Exclusion” on

Conrail where Pennsylvania law requires the insurer to prove policy exclusions.

Conrail further complains the trial court improperly required Conrail to show

that actual damage to third-party property occurred, where Pennsylvania

courts have held “own property” exclusions do not bar coverage for

remediation efforts to prevent threatened damage to third-party property.

Conrail emphasizes that it engaged in remediation efforts by removing the

buried drums at the Hollidaysburg site to prevent further contamination of any

groundwater and surface waters, which Conrail maintains is property of the

Commonwealth as a third party.

For Conrail’s third and final issue, it argues a genuine issue of material

fact exists in this case to preclude summary judgment. Specifically, Conrail

claims Mr. Joseph Ambriano (“Mr. Ambriano”) had authority to bind Lloyd to

the terms of the Lloyd policy because Mr. Ambriano underwrote the policy

through an implied principal-agent relationship based on the following facts:

(a) Mr. Ambriano signed a statement indicating that he understood he was

authorized to sign the Lloyd policy in May 1978 and that he would not have

signed it if he did not believe he was so authorized; (b) an employee of EWI

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J-A17045-16

documented a conversation he had with Mr. Ambriano, wherein Mr. Ambriano

notified EWI that a recent change in government regulations restricted Lloyd’s

ability to issue a letter of credit for another Italian insurer and Mr. Ambriano

suggested deferring the transfer; (c) PLAR, an international reinsurance

syndicate, entered into an agreement with Mr. Ambriano through which he

was deemed the sole and exclusive agent for all of PLAR’s United States

business; Lloyd was a PLAR member; and the majority of the policies issued

by PLAR that are still of-record were direct policies rather than reinsurance

policies; (d) PLAR negotiated policies for individual members, two of which

were issued by another PLAR member to Conrail; and (e) Mr. Ambriano was

highly regarded in the international insurance market. Based on these facts,

Conrail also argues Mr. Ambriano bound Lloyd to the policy because he

possessed apparent authority through a “limited delegation” from Lloyd to

underwrite it. Conrail emphasizes Lloyd was a member of PLAR, and by nature

of that membership, Lloyd delegated authority to PLAR to issue insurance

policies on its behalf; and Mr. Ambriano frequently acted for PLAR. Conrail

further contends that from the perspective of a third party engaging with Mr.

Ambriano, it was reasonable for a broker to believe Mr. Ambriano possessed

the authority to act on behalf of Lloyd because of his prominence in the

market. Alternatively, Conrail avers Lloyd is estopped from arguing that a

principal-agent relationship does not exist because once Lloyd was made

aware of the policy, Lloyd failed to take reasonable steps to notify Conrail that

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J-A17045-16

Mr. Ambriano was unauthorized to underwrite it. Conrail concludes the trial

court erred as a matter of law in misinterpreting the policy clauses and

exclusions at issue and misapplying Pennsylvania agency law, and this Court

must reverse summary judgment and remand for further proceedings. For

the following reasons, we disagree in part and agree in part.

Our standard of review of an order granting summary judgment requires

us to determine whether the trial court abused its discretion or committed an

error of law. Mee v. Safeco Ins. Co. of America, 908 A.2d 344, 347

(Pa.Super. 2006).

Judicial discretion requires action in conformity with law on
facts and circumstances before the trial court after hearing
and consideration. Consequently, the court abuses its
discretion if, in resolving the issue for decision, it misapplies
the law or exercises its discretion in a manner lacking
reason. Similarly, the trial court abuses its discretion if it
does not follow legal procedure.

Miller v. Sacred Heart Hospital, 753 A.2d 829, 832 (Pa.Super. 2000)

(internal citations and quotation marks omitted). Our scope of review is

plenary. Pappas v. Asbel, 564 Pa. 407, 418, 768 A.2d 1089, 1095 (2001),

cert. denied, 536 U.S. 938, 122 S.Ct. 2618, 153 L.Ed.2d 802 (2002). In

reviewing a trial court’s grant of summary judgment,

[W]e apply the same standard as the trial court, reviewing
all the evidence of record to determine whether there exists
a genuine issue of material fact. We view the record in the
light most favorable to the non-moving party, and all doubts
as to the existence of a genuine issue of material fact must
be resolved against the moving party. Only where there is
no genuine issue as to any material fact and it is clear that
the moving party is entitled to a judgment as a matter of

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J-A17045-16

law will summary judgment be entered. All doubts as to the
existence of a genuine issue of a material fact must be
resolved against the moving party.

Motions for summary judgment necessarily and directly
implicate the plaintiff’s proof of the elements of [a] cause of
action. Summary judgment is proper if, after the
completion of discovery relevant to the motion, including
the production of expert reports, an adverse party who will
bear the burden of proof at trial has failed to produce
evidence of facts essential to the cause of action or
defense which in a jury trial would require the issues to be
submitted to a jury. In other words, whenever there is no
genuine issue of any material fact as to a necessary element
of the cause of action or defense, which could be established
by additional discovery or expert report and the moving
party is entitled to judgment as a matter of law, summary
judgment is appropriate. Thus, a record that supports
summary judgment either (1) shows the material facts are
undisputed or (2) contains insufficient evidence of facts to
make out a prima facie cause of action or defense.

Upon appellate review, we are not bound by the trial court’s
conclusions of law, but may reach our own conclusions.

Chenot v. A.P. Green Services, Inc., 895 A.2d 55, 61 (Pa.Super. 2006)

(internal citations and quotation marks omitted) (emphasis added).

“The interpretation of an insurance contract is a matter of law and is

generally performed by a court.” Kropa v. Gateway Ford, 974 A.2d 502,

505 (Pa.Super. 2009), appeal denied, 605 Pa. 701, 990 A.2d 730 (2010). The

goal of insurance contract interpretation is “to ascertain the intent of the

parties as manifested by the language of the written instrument.” Madison

Const. Co. v. Harleysville Mut. Ins. Co., 557 Pa. 595, 606, 735 A.2d 100,

106 (1999). “[A] court is required to give effect to such language, if

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J-A17045-16

unambiguous, but to interpret it in favor of the insured, if otherwise.” Lititz

Mut. Ins. Co. v. Steely, 567 Pa. 98, 104, 785 A.2d 975, 978 (2001).

Ambiguity in a contract exists “if the language at issue could reasonably

be construed in more than one way.” Id. Nevertheless, “[w]hether ambiguity

exists cannot be resolved in a vacuum, …but must instead be considered in

reference to a specific set of facts.” Id. In other words, the ambiguity cannot

be measured in the abstract; rather, the policy language must be tested

against the facts of the case. See Wagner v. Erie Ins. Co., 801 A.2d 1226

(Pa.Super. 2002), aff’d, 577 Pa. 563, 847 A.2d 1274 (2004). No ambiguity

exists if after close review, it appears that only a lawyer’s ingenuity has made

the language uncertain. Lower Paxton Twp. v. U.S. Fidelity & Guar. Co.,

557 A.2d 393, 402 (Pa.Super. 1989), appeal denied, 523 Pa. 649, 567 A.2d

653 (1989).

“When analyzing a policy, words of common usage are to be construed

in their natural, plain, and ordinary sense.” Continental Cas. Co. v. Pro

Machine, 916 A.2d 1111, 1118 (Pa.Super. 2007). “[W]hen ‘the language of

the [insurance] contract is clear and unambiguous, a court is required to give

effect to that language.’” Mitsock v. Erie Ins. Exchange, 909 A.2d 828,

831 (Pa.Super. 2006) (quoting Madison Const. Co., supra at 606, 735 A.2d

at 106). A court must not distort the meaning of the language or resort to a

strained contrivance to find an ambiguity. Mitsock, supra.

[T]he proper focus regarding issues of coverage under
insurance contracts is the reasonable expectation[s] of the

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J-A17045-16

insured. In determining the reasonable expectations of the
insured, courts must examine the totality of the insurance
transaction involved. However, while reasonable
expectations of the insured are focal points in interpreting
the contract language of insurance policies, an insured may
not complain that [its]…reasonable expectations were
frustrated by policy limitations which are clear and
unambiguous. Like every other contract, the goal of
interpreting an insurance contract is to ascertain the intent
of the parties as manifested by the language of the policy.

St. Paul Mercury Ins. Co. v. Corbett, 630 A.2d 28, 30 (Pa.Super. 1993)

(en banc) (internal citations omitted).

Additionally, the insured has the burden to prove a valid policy claim.

Antrim Mining, Inc. v. Pennsylvania Ins. Guar. Ass’n, 648 A.2d 532, 534

(Pa.Super. 1994), appeal denied, 540 Pa. 616, 657 A.2d 487 (1995) (citing

Riehl v. Travelers Insurance Co., 772 F.2d 19, 23 (3d Cir. 1985)). On the

other hand, where “an insurer relies on a policy exclusion as the basis for its

denial of coverage…, the insurer has asserted an affirmative defense, and

accordingly, bears the burden of proving such defense.” McEwing v. Lititz

Mut. Ins. Co., 77 A.3d 639, 646 (Pa.Super. 2013) (quoting Madison Const.

Co., supra at 605; 735 A.2d at 106). Further, if the policy contains an

exception to an exclusion, the burden to prove whether the exception applies

falls again on the insured. Northern Ins. Co. of New York v. Aardvark

Assocs., Inc., 942 F.2d 189, 194-95 (3d Cir. 1991).

Regarding the existence of a principal-agent relationship, that question

is ordinarily one of fact for the jury to determine. Joyner v. Harleysville

Ins. Co., 574 A.2d 664, 668 (Pa.Super. 1990), appeal denied, 527 Pa. 587,

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J-A17045-16

588 A.2d 510 (1991). Where the facts giving rise to the relationship are not

in dispute, however, the question is one which is properly decided by the

court. Breslin by Breslin v. Ridarelli, 454 A.2d 80, 82 (Pa.Super. 1982).

An agency relationship may be created by any of the following ways:

(1) express authority, (2) implied authority, (3) apparent
authority, and/or (4) authority by estoppel. Express
authority exists where the principal deliberately and
specifically grants authority to the agent as to certain
matters. Implied authority exists in situations where the
agent’s actions are “proper, usual and necessary” to carry
out express agency. Apparent agency exists where the
principal, by word or conduct, causes people with whom the
alleged agent deals to believe that the principal has granted
the agent authority to act. Authority by estoppel occurs
when the principal fails to take reasonable steps to disavow
the third party of their belief that the purported agent was
authorized to act on behalf of the principal.

* * *

The basic elements of agency are the manifestation by the
principal that the agent shall act for him, the agent’s
acceptance of the undertaking and the understanding of the
parties that the principal is to be in control of the
undertaking. The creation of an agency relationship
requires no special formalities. The existence of an agency
relationship is a question of fact. The party asserting the
existence of an agency relationship bears the burden of
proving it by a fair preponderance of the evidence. In
establishing agency, one need not furnish direct proof of
specific authority, provided it can be inferred from the facts
that at least an implied intention to create the relationship
of principal and agent existed.

V-Tech Services, Inc. v. Street, 72 A.3d 270, 278–79 (Pa.Super. 2013)

(citing Walton v. Johnson, 66 A.3d 782, 786–88 (Pa.Super. 2013)

(citations and quotation marks omitted)).

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J-A17045-16

Instantly, Stonewall’s policy provides the following language:

TO INDEMNIFY THE INSURED ANY AND ALL SUMS THE
INSURED SHALL BECOME LEGALLY LIABLE TO PAY AS
DAMAGES, INCLUDING LIABILITY ASSUMED BY THE
INSURED UNDER ANY AGREEMENT OR CONTRACT, TO ANY
PERSON OR PERSONS AS COMPENSATION FOR:

(1) PERSONAL INJURY

(2) PROPERTY DAMAGE

(3) EVACUATION EXPENSES

TO REIMBURSE THE INSURED FOR COSTS PAID OR
INCURRED BY THE INSURED IN CONNECTION WITH
PERSONAL INJURY, PROPERTY DAMAGE OR EVACUATION
EXPENSES ARISING OUT OF AN OCCURRENCE TO WHICH
THIS POLICY APPLIES. SUCH COSTS ARE PAYABLE IN
ADDITION TO ANY LIMIT OF INSURER’S LIABILITY FOR
ULTIMATE NET LOSS, BUT THE [INSURER] SHALL NOT BE
OBLIGATED TO PAY ANY GREATER PROPORTION OF SUCH
COSTS THAN THE AMOUNTS OF ULTIMATE NET LOSS
PAYABLE UNDER THIS POLICY BEARS TO THE TOTAL OF ALL
ULTIMATE NET LOSS RESULTING FROM SUCH
OCCURRENCE.

ARISING OUT OF ANY OCCURRENCE OR OCCURRENCES
CAUSED BY OR GROWING OUT OF THE INSURED’S
OPERATIONS ANYWHERE IN THE WORLD, AND
OPERATIONS INCIDENTAL THERETO.

(CRL 1985 Policy at 2; R.R. at 001417a). The policy defines “occurrence” as

“an event, or continuous repeated exposure to conditions which cause

personal injury, property damage or evacuation expenses.” (Id. at 3; R.R. at

001418a). The policy defines “property damage” as “(1) physical injury to or

destruction of tangible property (other than property owned by the named

insured) which occurs during the policy period, including loss of use thereof at

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J-A17045-16

any time resulting therefrom, or (2) loss of use of tangible property which has

not been physically injured or destroyed provided such loss of use is caused

by an occurrence during the policy period, but (2) above shall not include

evacuation expenses.” (Id. at 4; R.R. at 001419a).

In preparation for analyzing the application of Stonewall’s policy to the

Elkhart site, the trial court relied on its interpretation of the substantially

similar “Operations Clause” in Continental’s policy, as follows:

The acquired assets at issue here are parcels of real
property located in several states that suffer from
environmental contamination for which Conrail has been
found liable under the Comprehensive Environmental
Response Compensation and Liability Act (“CERCLA”).
Under CERCLA, a current owner or operator of a
contaminated site may be held strictly and wholly liable for
the environmental clean-up of the site, even if the causes of
that contamination predate its ownership or operation of the
site.

* * *

[T]he opening provisions of the [p]olicies [provide]:

TO INDEMNIFY THE INSURED FOR ANY AND ALL
SUMS THE INSURED SHALL BECOME LEGALLY LIABLE
TO PAY AS DAMAGES, INCLUDING LIABILITY
ASSUMED BY THE INSURED UNDER ANY AGREEMENT
OR CONTRACT, TO ANY PERSON OR PERSONS AS
COMPENSATION FOR:

* * *

(b) DAMAGE TO OR DESTRUCTION OF PROPERTY,
INCLUDING LOSS OF USE THEREOF, EXCLUDING
INSURED’S OWN PROPERTY BUT INCLUDING
PROPERTY OF OTHERS IN INSURED’S CARE,
CUSTODY OR CONTROL;

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J-A17045-16

* * *

ARISING OUT OF ANY OCCURRENCE OR
OCCURRENCES CAUSED BY OR GROWING OUT OF
THE INSURED’S OPERATIONS ANYWHERE IN THE
WORLD, AND ALL OPERATIONS INCIDENTAL
THERETO.

The [p]olicies further provide that the “Named Insured” is
Conrail, and “[o]ccurrence means an event, or continuous
or repeated exposure to conditions which cause injury or
damage during the term of the policy.”

* * *

In 1976, when the first [p]olicies were executed, CERCLA
did not yet exist, so such far[-]reaching environmental
liability was not contemplated by Conrail and its insurers.
Conrail had expressly disclaimed assumption of its
predecessor’s liabilities in its acquisition agreements, and
the [p]olicies did not include such predecessors in their
definition of the “Insured.”

In enacting the Rail Act, Conrail’s enabling legislation,
Congress intended for Conrail to get a “fresh start” with a
“clean slate.” Then, in 1980, Congress enacted CERCLA and
radically changed the legal landscape in which Conrail and
its insurers had been operating.

CERCLA was enacted to ensure that hazardous pollutants
which had accumulated in the nation’s land and water
through decades of industrial activity were removed,
contained, or otherwise remediated. Under CERCLA, the
government may opt to pursue only one potentially
responsible party for the entire cost of the clean-up, and
that party must then seek contribution from other
responsible parties. In this case, Conrail has apparently
settled or entered into tolling agreements with respect to its
contribution claims against the reorganized Penn Central, so
it does not have to shoulder the entire burden of the clean-
up costs alone. However, there may be other potentially
responsible parties who are defunct, insolvent, or otherwise
unable to contribute their fair share to the clean-up costs,
so Conrail may have to cover their portion too.

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J-A17045-16

As noted by Judge Wisdom of the Special Regional Rail
Reorganization Court, there is a potential conflict between
the Rail Act’s fresh start policy and CERCLA’s broad liability
provisions. However, he found that

CERCLA takes precedence over this general fresh start
policy because Congress specifically stated that
CERCLA liability arises “[n]otwithstanding any other
provision or rule of law.” In a conflict, CERCLA
prevails. [As a result,] the fresh start policy may work
to limit [Conrail’s] liability to post-conveyance
contamination; it does not, however, affect our
decision to leave for the district courts the decision
whether to impose joint and several liability [on
Conrail under CERCLA].

In reaching this conclusion, Judge Wisdom recognized that
where the environmental harm caused by several potentially
responsible parties is not clearly divisible, joint and several
liability may be imposed, and, as a result, Conrail may end
up paying for contamination that was caused by others,
prior to 1976. However, just because Conrail may be found
liable to pay for the clean-up of pollution that was not
caused by its own operations, that does not necessarily
mean its general liability insurers must reimburse it for such
costs under the [p]olicies.

* * *

The language of the [p]olicies makes clear that the insurers
will reimburse Conrail only for the damages (clean-up costs)
arising out of an occurrence (environmental contamination)
that was caused by or grew out of Conrail’s operations.
Where Conrail’s CERCLA liability is premised solely upon its
status as a current, passive owner of the contaminated site,
and not as a polluting operator, then the pre-existing
environmental condition giving rise to the damages for
which indemnification is sought by Conrail was not caused
by, nor did it grow out of, Conrail’s railroad operations.
However, where Conrail contributed to that condition, i.e.,
the contamination, by discharging some of the pollutants
itself, then the occurrence giving rise to the damages for

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J-A17045-16

which Conrail seeks indemnification was caused by and grew
out of Conrail’s operations.

The [p]olicies do not require that the damages incurred by
Conrail arise out of an occurrence caused solely or wholly
by Conrail. Nor do they expressly provide coverage for
damages caused in part by Conrail’s operation. However,
the phrase “growing out of” Conrail’s operations can
reasonably be interpreted to include contamination caused
only partially by Conrail. Therefore, where Conrail is liable
because it caused some of the pollution itself, the insurers
must provide coverage for the entire amount of damages
that Conrail must pay, even if some of the damages arose
out of pollution that was caused by other entities.

This result is somewhat unusual—where Conrail did nothing
wrong, it is not covered, but where it is at least partially at
fault, it is entirely covered. However, that is the result
dictated by a plain reading of the language of the Operations
Clause at issue.

(Trial Court Opinion, filed November 13, 2013, at 1-7) (footnotes omitted).

Regarding the specific issue of coverage under Stonewall’s policy, the

trial court applied its analysis of Continental’s similar policy language to the

facts of the Elkhart site contamination and Stonewall’s policy as follows:

In this case, Conrail has the burden of proof with respect to
the general coverage language of the [p]olicies. In other
words, Conrail must show that it had to pay money damages
to third parties for physical injury to or destruction of their
tangible property, which injury or destruction occurred
during the policy period 1985-1986 and was caused by an
event, or continuous or repeated exposure to conditions,
which event or conditions were caused by or grew out of
Conrail’s operations.

Conrail has failed to meet its burden with respect to the
Elkhart [s]ite because the one documented spill of [CCl4]
occurred before Conrail came into existence and there were
no specific spills of TCE identified for the [p]olicy year at
issue here. The evidence regarding the alleged dumping of

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J-A17045-16

solvents by Conrail employees at the car shop at Elkhart
does not identify what solvent/degreaser was purportedly
spilled, although Conrail speculates that it was something
“like TCE.” Conrail therefore cannot prove that its dumping
activities caused the specific contamination that it was
forced to pay to remediate at Elkhart. Furthermore, no year
was identified in connection with those vaguely remembered
occurrence(s). As a result, Conrail cannot show an event,
or continuous or repeated exposure to conditions, which
caused injury or destruction to a third party’s property
during the term of the [p]olicies at issue here.

(Trial Court Opinion, filed October 28, 2014, at 4) (footnotes omitted).

Regarding the specific issue of coverage under Continental’s policy, the

trial court applied its analysis of Continental’s policy language to the facts of

the Hollidaysburg, Elkhart, Douglasville, Conway, Beacon, and Paoli sites as

follows:

In this case, Conrail has the burden of proof with respect to
the Operations Clause and the other general coverage
language of the [p]olicies. In other words, Conrail must
show that it had to pay money damages as compensation
for physical damage to a third party’s property arising out
of an event, or continuous or repeated exposure to
conditions, which caused injury or damage during the term
of the policy, which event or conditions were caused by or
grew out of Conrail’s operations.

* * *

Conrail has…failed to meet its burden with respect to the
Elkhart [s]ite because the one documented spill of [CCl4]
occurred before Conrail came into existence and there were
no specific spills of TCE identified for any of the [p]olicy
years at issue here. The alleged dumping of solvents by
Conrail employees at the car shop at Elkhart is not covered
because no year was identified in connection with those
vaguely remembered occurrence(s). As a result, Conrail
cannot show “an event, or continuous or repeated exposure
to conditions which cause injury or damage during the tern

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J-A17045-16

of” any of the [p]olicies at issue here. Furthermore, the
evidence cited by Conrail does not identify what
solvent/degreaser was purportedly dumped at the car shop,
although Conrail speculates that it was something “like
TCE.”

Conrail failed to meet its burden with respect to the Control
Tower [a]rea at the Beacon [s]ite because Conrail has not
shown that any spill occurred at that [s]ite during its tenure
there.

Conrail has also failed to show an occurrence caused by its
operations and causing damage within the term of any
[p]olicy prior to the 1981 oil spill at the Charles River
Chamber [a]rea at Beacon [s]ite, prior to the 1977 oil spill
at the Conway site, and prior to a 1979 PCB spill at the Paoli
[s]ite, so the [p]olicies for the years prior to those
occurrences are not implicated at those [s]ites. Douglasville
is the only [s]ite for which Conrail appears to have met its
burden of proof regarding relevant occurrences implicating
all Continental [p]olicies because there is no dispute
between the parties that Conrail sent its waste oil there
between 1976 and 1985.

[Continental] argue[s] with respect to the Douglasville oil
recycling [s]ite that there is no coverage because Conrail
did not contribute to the pollution by discharging some of
the waste there itself. However, the Operations Clause in
the [p]olicies provides coverage not only for occurrences
directly “caused by” Conrail’s operations, but also
occurrences “growing out of the insured’s operations
anywhere in the world, and all operations incidental
thereto.” The mistreatment of Conrail’s waste, which it sent
to a third party for recycling or disposal, necessarily grows
out of Conrail’s operations and is incidental thereto.

If Conrail fails to meet its burden of proof as to coverage
with respect to a specific site, then [Continental’s] summary
judgment motions must be granted. Summary judgment
will therefore be granted in favor of [Continental] with
respect to the Hollidaysburg and Elkhart [s]ites, the Control
Tower [a]rea at the Beacon [s]ite, the pre-1981 [p]olicies
at the Charles River Chamber [a]rea of the Beacon [s]ite,

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J-A17045-16

the pre-1977 [p]olicies at the Conway site, and the pre-
1979 [p]olicies at the Paoli [s]ite.

With respect to the 1981 occurrence at the Charles
River/Beacon [s]ite, the 1977 and 1979 occurrences at the
Conway [s]ite, and the multiple occurrences at Paoli
beginning in 1979, [Continental] contend[s] that Conrail has
failed to show that the costs it paid for more general site-
wide clean-up long after each specific spill occurred arose
out of those occurrences. [Continental] argue[s] that each
such occurrence was promptly remediated by Conrail at the
time it happened, or shortly thereafter. In [Continental’s]
view, those specific, immediately remediated, spills did not
contribute to the general pollution of the [s]ite which Conrail
eventually had to pay to remediate.

[Continental’s] argument raises disputed issues of fact as to
whether each of the specifically identified occurrences was
a contributing cause of the larger [s]ite pollution that
ultimately had to be remediated at great cost to Conrail and
others. This is a battle for the experts to fight at trial, not
for the court to resolve now as a matter of law.

[Continental] also argue[s] that the documented spills at
the Paoli [s]ite were de minimus compared to the decades
of PCB burps and drips that preceded Conrail’s take-over of
the Paoli [s]ite. Similarly, [Continental] argue[s] that
Conrail’s oil spills at Conway and Beacon Park [were] de
minimus compared to the overall pollution at the [s]ites.
The [p]olicies do not speak to de minimus occurrences.
Instead, they provide coverage for property damage arising
out of “any occurrence” arising out of Conrail’s operations.
Therefore, if the spills that occurred on Conrail’s watch were
a contributing cause to the environmental damage later
remediated at the Conway, Beacon Park and Paoli [s]ites,
then they are covered occurrences under the [p]olicies.

For now, the court can rule only that Conrail has shown
occurrence(s) potentially covered by the [p]olicies
beginning in 1981 at the Charles River/Beacon [s]ite, in
1977 at the Conway [s]ite, in 1979 at the Paoli [s]ite, and
in 1976 at Douglasville.

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J-A17045-16

With respect to the [s]ites and [p]olicies for which Conrail
has shown a potentially covered occurrence, the burden
then shifts to [Continental] to show that each occurrence at
each [s]ite falls within the “Pollution Exclusion.” Since all
such occurrences involve the discharge, dispersal, release
or escape of pollutants, [Continental has] met [its] initial
burden. With respect to the [p]olicies in effect from 1985-
1986 and onward, which contain no Exception to the
Pollution Exclusion, the inquiry ends, and summary
judgment must be granted in favor of [Continental] with
respect to all remaining [s]ites and those post-1985
[p]olicies.

However, the [p]olicies in effect from 1976-1985 contain a
“sudden and accidental” or “accidental” Exception to the
Pollution Exclusion, which this court has previously ruled are
both synonymous with the term “unexpected and
unintended.” While the burden of proving an exception to
an exclusion may fall on the insured, in this case that initial
burden is easily met with a description of the nature of the
occurrence and Conrail’s assertion that it did not expect or
intend the occurrence. Such assertions of innocence are
subject to the Nanty-Glo rule[1] and preclude a grant of
summary judgment.

As a practical matter, the burden then, necessarily, shifts to
[Continental] to proffer evidence that the polluting
discharge was expected or intended. For instance,
[Continental] contend[s] that the PCB railcar burps that
occurred at the Paoli site were expected and intended
because the railcars were designed by General Electric to
release PCB laden oil in the event of overheating or other
equipment malfunction, and they regularly did so. The
question of whether such designer-induced burps were
expected or intended by Conrail is an issue of fact for trial.
Furthermore, not all of the spills documented at the Paoli
site during Conrail’s tenure were burps, so some of these

____________________________________________

1See Borough of Nanty-Glo v. American Surety Co. of New York, 309
Pa. 236, 163 A. 523 (1932) (holding oral testimony of moving party, even if
uncontradicted, will not afford sufficient basis for entry of summary judgment
because credibility of testimony is for jury to decide).

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spills may well prove to have been unexpected and
unintended.

[Continental] also argue[s] that the improper disposal of
waste materials at Douglasville was expected and intended
because Berks Associates did it deliberately. However, the
proper test is whether the insured, Conrail, expected or
intended the release of waste oil at the [s]ite, not whether
a third party, who is a stranger to the [p]olicies, did. Since
Conrail’s employees claim they did not know of, expect, or
intend Berks’ apparently purposeful polluting activities,
Conrail’s knowledge, expectation, and intent become issues
of fact for trial.

[Continental] further argue[s] that coverage is barred at the
Beacon, Conway and Paoli [s]ites, by the “Known Loss
Doctrine,” i.e., that Conrail knew the [s]ites were polluted
when it acquired them and therefore knew that they were
polluted when it applied for the [p]olicies at issue here.
Under the Known Loss Doctrine, the question for trial is
“whether the evidence shows that the insured was charged
with knowledge which reasonably shows that it was, or
should have been, aware of a likely exposure to losses which
would reach the level of coverage” provided by the [p]olicies
at issue.

Conrail asserts that it did not know, during the 1976 through
1985 period when it applied for the [p]olicies here, the
extent of the loss or damages it would later be required to
pay for remediation of the contamination, much of which
was caused by others before Conrail even came into being.
Whether that is a true statement is for the finder of fact to
determine.

[Continental’s] final argument is that any fines and penalties
Conrail paid in connection with any of the [s]ites are not
recoverable under the [p]olicies because they do not
constitute “damages” paid by Conrail as “compensation
for…damage or destruction of property” and coverage for
them is barred as a matter of public policy.

With respect to the [Charles River/Beacon, Conway, Paoli,
and Douglasville s]ites, Conrail paid approximately $1.2
million to governmental entities in connection with the

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clean-up at the Conway [s]ite only. Of this amount,
[Continental] contest[s] coverage with respect to $616,000
in civil penalties Conrail paid to the PaDEP and $91,200 it
paid to the Borough of Conway.

Both the state and local fines Conrail paid were assessed as
“penalties” and were in addition to the costs Conrail was
required to incur for corrective or remedial action, i.e.,
clean-up and prevention of further violations. Since the
state legislature and the municipality termed them
“penalties,” the intent was to punish Conrail rather than
compensate other property owners for damage. The
[p]olicies allow for the recovery only of amounts paid as
“compensation.” Furthermore, Pennsylvania law prohibits
the recovery of punitive or penal damages under insurance
policies like the ones at issue here. Therefore, Conrail is not
entitled to recover from [Continental] the civil penalties it
paid to the PaDEP and the Borough of Conway.

(Trial Court Opinion, filed October 28, 2014, at 12-19) (footnotes omitted).

We see no reason to disrupt the court’s sound analysis regarding the

interpretation of the insurance policy language and the application of the

language to the sites in question. See Chenot, supra; Wagner, supra; St.

Paul Mercury Ins., supra. See also Antrim Mining, Inc., supra;

McEwing, supra; Northern Ins. Co. of New York, supra. Consequently,

Conrail’s first issue on appeal merits no relief.

Regarding Conrail’s second issue, that the trial court incorrectly found

Conrail did not damage third-party property, even if Conrail did damage third-

party property by polluting groundwater at the Hollidaysburg site, Conrail is

still not entitled to relief. As the insured, Conrail bears the burden to prove a

valid policy claim. See Antrim Mining, Inc., supra. We observe nothing in

the record to indicate the groundwater pollution occurred during any of the

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policy years at issue in this case. Therefore, assuming without deciding the

polluted groundwater constituted damage to third-party property, Continental

would not be responsible for indemnification. See id. Accordingly, Conrail’s

second issue merits no relief.

With respect to Conrail’s third claim on appeal, we observe an issue of

fact arguably exists regarding the existence of a principal-agent relationship

between Mr. Ambriano and Lloyd: Mr. Ambriano stated that he understood he

was authorized to sign the Lloyd policy; EWI, Conrail’s broker, dealt with Mr.

Ambriano; Mr. Ambriano was the sole and exclusive agent for all of PLAR’s

business in the United States; Lloyd was a PLAR member; the majority of the

of-record policies issued by PLAR were direct policies; PLAR negotiated policies

for individual members; and Mr. Ambriano was highly regarded in the

international insurance industry. See Chenot, supra; Joyner, supra;

Breslin, supra. Despite the issue of fact, we note the finding of such a

relationship is irrelevant regarding the Elkhart, Hollidaysburg, Beacon, and

Conway (prior to the 1977 oil spill) sites. Lloyd’s purported policy only covered

“occurrences” on all of Conrail’s sites from April 1, 1978, to April 1, 1979, and

the contamination that occurred at the Elkhart, Hollidaysburg, Beacon, and

Conway (prior to the 1977 oil spill) sites falls outside of the policy coverage

based on the court’s foregoing application of its interpretation of Continental’s

similar policy language to the sites at issue on appeal. Therefore, Conrail’s

argument regarding the existence of a principal-agent relationship as it

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J-A17045-16

pertains to the Elkhart, Hollidaysburg, Beacon, and Conway (prior to the 1977

oil spill) sites merits no relief.

With respect to the Douglasville, Paoli, and Conway (after the 1977 oil

spill) sites, however, Lloyd’s purported policy may be implicated if the

“occurrences” happened within the policy period. In order to determine

whether Lloyd is required to indemnify Conrail for any “occurrences” under a

binding insurance contract, a finder-of-fact must first decide if a principal-

agent relationship existed between Mr. Ambriano and Lloyd. Based on this

record, we observe an issue of fact exists with regard to Mr. Ambriano and

Lloyd’s alleged principal-agent relationship. See Chenot, supra. Because

the facts regarding the existence of a principal-agent relationship are in

dispute, this issue is for the fact-finder. Joyner, supra; Breslin, supra.

Based on the foregoing, we conclude Conrail produced sufficient facts to

defeat summary judgment on the question of whether there was a principal-

agent relationship between Mr. Ambriano and Lloyd. Accordingly, we reverse

summary judgment on this claim and remand for further proceedings.

Judgment affirmed in part, reversed in part, and case remanded for

further proceedings. Jurisdiction is relinquished.

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Judgment Entered.

Joseph D. Seletyn, Esq.
Prothonotary

Date: 3/23/18

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