Armstrong Cleaners, Inc. v. Erie Insurance Exchange

364 F.Supp.2d 797 (2005)

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Nature of the Case

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Facts

Ps operated a dry cleaning business. Ps are now defendants in lawsuits seeking to hold them responsible for environmental contamination at the sites of two of their cleaning establishments. State Farm claims that Ps and other defendants are 'responsible for the investigation and environmental cleanup, and all other costs relating to the existence of contamination at or from the Property arising from dry cleaning chemicals' at the Tillotson location, and that State Farm is entitled to contribution 'from other insurance carriers and/or other responsible parties, including but not limited to, Ray and/or Armstrong.' Ps were insured under a liability insurance policy issued by D. Coverages 'F' and 'G' of the Policy protected Ps from liability arising from personal injury and property damage. The Policy contains an exclusion for 'expected or intended acts': We do not cover under Personal Injury Liability (Coverage F), Property Damage Liability (Coverage G), and Medical Payments (Coverage I): (1) injury or damage expected or intended from the standpoint of anyone we protect. This does not apply to personal liability or property damage resulting from your protecting persons or property. The Policy also contains 'pollution' exclusions. D reserved all rights to deny 'liability and coverage' for the Tillotson location, pending investigation of grounds for potential denial of coverage. As grounds for potential denial of coverage, the letter identified: (a) the Policy's definition of a covered 'occurrence,' (b) the Policy's 'expected or intended acts' exclusion, and (c) the Policy's 'pollution' exclusion. D also included a 'blanket' reservation of its right to assert any other ground for denying coverage and/or liability that might be discovered during D's investigation. D reserved the right 'to seek judicial resolution of the coverage issues by way of Declaratory or other legal proceedings during the pendency of or upon conclusion of the claim.' D also told Ps that they might wish to retain private counsel at their own expense because of the possibility that some or all other claims asserted in the underlying claims may not be covered by the policy, or if coverage may result in an award of damages that exceeds the coverage provided by such policy, or the possibility that your failure to comply with policy conditions may relieve D from any liability. D insists on using counsel of its choice to defend the underlying lawsuits. Ps contend that counsel selected by D will have a conflict of interest because issues as to which D has reserved its rights are likely to be litigated and decided in the underlying lawsuits. Ps filed suit to force D to pay for counsel of their choice. They also assert a claim for bad faith denial of coverage. D has moved for summary judgment on both issues. Ps have moved for summary judgment on the issue of selection of counsel.