author: ROBERT F. COLLINS, District Judge.

text:
    EAST JEFFERSON GENERAL HOSPITAL, et al. v. Margaret M. HECKLER, et al.
    Civ. A. No. 83-4107.
    United States District Court, E.D. Louisiana.
    Oct. 19, 1984.
    Steven Witman, Johnston & Duplass, New Orleans, La., and Ronald N. Sutter, Powers, Pyles, Sutter & O’Hare, Washington, D.C., for plaintiffs.
    Eneid A. Francis, Asst. U.S. Atty., New Orleans, La., and Jeanne Schulte Scott, Office of General Counsel, Dept, of Health & Human Services, Washington, D.C., for defendants.
   MEMORANDUM OPINION

ROBERT F. COLLINS, District Judge.

Plaintiffs in this action are a group of hospitals who are “providers of services” to Medicare patients, as defined in 42 U.S.C. § 1395x(u). They challenge the validity of the “Malpractice Rule,” 42 C.F.R. § 405.452(b)(1)(h), a recently adopted regulation which changes the formula by which provider hospitals are reimbursed for medical malpractice premiums by Medicaid and Medicare. The defendant, Margaret M. Heckler, Secretary of the Department of Health and Human Services, is the administrator of the Medicare program. The plaintiffs invoke the Court’s jurisdiction pursuant to 42 U.S.C. § 1395oo (f)(1).

The matter is before the Court on the parties’ cross motions for summary judgment. Also before the Court is defendant’s motion to strike Plaintiffs’ Exhibit 23. After oral argument on the matter, the Court took the matter under advisement.

In summary, the Court’s ruling of the pending motions are as follows:

(1) the motion to strike plaintiffs’ Exhibit 23 is GRANTED;

(2) the defendant’s motion for summary judgment will be DENIED;

(3) the plaintiffs’ motion for summary judgment will be GRANTED; and

(4) the matter is remanded to the Secretary of the Department of Health and Human Services for further consideration in accordance with this Opinion.

Introduction

This suit challenges the procedural and substantive validity of a Medicare regulation, 42 C.F.R. § 405.432(b)(l)(ii), commonly known as the Malpractice Rule, governing the apportionment of a hospital’s malpractice insurance costs to the Medicare program. Plaintiffs argue that the Malpractice rule is invalid because: (1) it is arbitrary and capricious; (2) it violates the Medicare Act; and (3) it was not promulgated in accordance with the mandatory notice and comment procedures of the administrative procedure act.

Background

On March 15, 1979, the Secretary of the Department of Health and Human Services (Secretary) announced an anticipated change in Medicare reimbursement policy through a notice of proposed rulemaking. 44 Fed.Reg. 15744. The final regulation, published on June 1, 1979, effective on June 30, 1979, dramatically changed the method of calculating reimbursement for malpractice insurance costs (or self-insurance fund contributions) incurred by qualified providers servicing Medicare patients. Prior to adoption of this regulation, providers pooled medical malpractice insurance costs with other indirect administrative and general (A & G) costs. Reimbursement from Medicare funds for A & G costs was based on the percentage of services utilized by Medicare patients (a Medicare utilization rate). That is, if Medicare patients utilized 50% of a provider’s services, Medicare would reimburse that provider for 50% of its A & G costs, including 50% of its medical malpractice insurance premiums. The Medicare utilization rates for plaintiffs in this case range from approximately 44% to 57.4% for the cost years at issue here.

The challenged regulation takes medical malpractice insurance premiums out of the A & G category and directly apportions them between Medicare and non-Medicare patients as follows:

For cost reporting periods beginning on or after July 1, 1979, costs of malpractice insurance premiums and self-insurance fund contributions must be separately accumulated and directly apportioned to Medicare. The apportionment must be based on the dollar ratio of the provider’s Medicare paid malpractice losses to its total paid malpractice losses for the current cost reporting period and the preceding 4-year period. If a provider has no malpractice loss experience for the 5-year period, the costs of malpractice insurance premiums or self-insurance fund contributions must be apportioned to Medicare based on the national ratio of malpractice awards paid to Medicare beneficiaries to malpractice awards paid to all patients. The Health Care financing Administration will calculate this ratio periodically based on the most recent departmental closed claim study. If a provider pays allowable insured malpractice losses incurred by Medicare beneficiaries, either through allowable deductible or coinsurance provisions, or as a result of an award in excess of reasonable coverage limits, or as a governmental provider, such losses and related direct costs must be directly assigned to Medicare for reimbursement.

Plaintiffs are nine not-for-profit Louisiana hospitals which furnish services to Medicare patients. Prior to the promulgation of the Malpractice Rule, they were reimbursed for malpractice insurance rates under the traditional utilization approach.

As a result of the Malpractice Rule, for the years ending 1980-1981, plaintiffs were reimbursed according to the regulations direct apportionment method rather than on the basis of Medicare utilization. Eight of the plaintiffs were reimbursed 5.1% of their malpractice insurance costs in accordance with the “national ratio” applicable to hospitals with no paid claims for the relevant five year period. One of the • hospitals (Glenwood Regional Medical Center) received no Medicare reimbursement for its malpractice insurance costs because during the five year period, it had paid a non-Medicare claim but had not paid a Medicare claim. Because plaintiffs’ Medicare utilization rates range from 33% to 57.4%, defendants’ application of the Malpractice Rule resulted in a substantial loss in Medicare reimbursement.

This action followed a hearing before the Provider Reimbursement Review Board (Board) and certification of plaintiffs’ challenge to the Malpractice Rule pursuant to 42 U.S.C. § 1395oo (f)(1). 42 U.S.C. § 1395oo(f) provides that the case “shall be tried pursuant to the applicable provisions under Chapter 7 of Title 5 [the Administrative Procedure Act (APA)]----” The provision of the APA governing the scope of review is 5 U.S.C. § 706, which requires an administrative decision to be set aside if it is arbitrary, capricious, an abuse of discretion, unsupported by substantial evidence, or otherwise not in accordance with law.

In Motor Vehicle Manufacturers Association of the United States, Inc. v. State Farm Mutual Insurance Co., 463 U.S. 29, 103 S.Ct. 2856, 2866-2867, 77 L.Ed.2d 443 (1983), the Supreme Court recently described the scope of review “under the arbitrary and capricious” standard as follows:

[T]he agency must examine the relevant date and articulate a satisfactory explanation for its action including a “rational connection between the facts found and the choice made.” In reviewing that explanation, we must “consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment.” Normally, an agency rule would be arbitrary and capricious if the agency has relied on factors which Congress has not intended it to consider, entirely failed to consider an important aspect of the problem, offered an explanation for its decision that runs counter to the evidence before the agency, or is so implausible that it could not be ascribed to a difference in view or the product of agency expertise. The reviewing court should not attempt itself to make up for such deficiencies: “We may not supply a reasoned basis for the agency’s action that the agency itself has not given.” (Citations omitted.)

The Court has been advised that numerous other district courts have ruled on challenges to the Malpractice Rule. Although the majority of these decisions appear to have been appealed, no court of appeals has yet issued an opinion concerning the validity of the Malpractice Rule.

At least four district courts have held that the Malpractice Rule is valid. See, Athens Community Hospital v. Heckler, 565 F.Supp. 695 (E.D.Tenn.1983), appeal docketed, No. 83-5546 (6th Cir. Aug. 5, 1983); Cumberland Medical Center v. Heckler, 578 F.Supp. 39 (M.D.Tenn.1983) (Morton, J.) (adopting Opinion in Athens Community Hospital v. Heckler), appeal docketed, No. 83-5549 (6th Cir. Aug. 9, 1983); Humana of Aurora, Inc. v. Heckler, No. 83-2-70, slip op. (D.Colo. Sept. 19, 1983) (Weinshienk, J.); appeal docketed No. 83-2417 (10th Cir. Nov. 4, 1983); Walter O. Boswell Memorial Hospital v. Heckler, 573 F.Supp. 884 (D.D.C.1983), appeal docketed, No. 83-2223 (D.C.Cir. Dec. 2, 1983), (argued June 4, 1984).

At least ten courts have held the regulation to be invalid. See, Mt. Carmel Mercy Hospital v. Heckler, 581 F.Supp. 1311 (E.D.Mich.1983) (DeMascio, Jr.), appeal docketed, No. 84-1188 (Mar. 21, 1984); Abington Memorial Hospital v. Heckler, 576 F.Supp. 1081 (E.D.Pa.1983) (Fullam, J.), appeal docketed, No. 84-1079 (Feb. 15, 1984); Chelsea Community Hospital v. Heckler, No. 83CV-6126-AA, slip op. (E.D.Mich. Dec. 29, 1983) (Joiner, J.) (adopting Opinion of DeMascio, J. in Mt. Carmel Mercy Hospital v. Heckler), appeal docketed, No. 84-1146 (6th Cir. Mar. 6, 1984); St. James Hospital v. Heckler, 579 F.Supp. 757 (N.D. Ill.1984) (Will, J.), appeal docketed, No. 84-1478 (7th Cir. Mar. 27, 1984); Lloyd Noland Hospital and Clinic v. Heckler, No. CV83-PT-0868-S, slip op. (N.D.Ala. Apr. 5, 1984) (Propst, J.); Bedford County Memorial Hospital v. Heckler, 583 F.Supp. 367 (W.D.Va.1984) (Turk, J.); Albany General Hospital v. Heckler, 584 F.Supp. 614 (D.Oregon 1984) (Frye, J.), appeal docketed, No. 84-3865 (9th Cir. June 6, 1984); Humana of Illinois, Inc. v. Heckler, 584 F.Supp. 618 (C.D.Ill.1984) (Alderman, J.) (adopting Opinion of Will, J. in St. James Hospital v. Heckler), appeal docketed, No. 894-1727 (7th Cir. Apr. 30, 2984); St. Joseph’s Hospital, Tucson v. Heckler, 583 F.Supp. 1545 (D.Ariz.1984) (Marquez, J.); Alexandria Hospital v. Heckler, 586 F.Supp. 581 (E.D.Va.1984) (Merhige, J.).

This Court must agree with the majority of other courts which have addressed this problem that the Malpractice Rule is invalid. However, inasmuch as judicial authority on this matter is split, this Court finds it necessary to state its reasons for invalidating the regulation.

Discussion

The substance of plaintiffs’ complaint involves three challenges to the regulation. First, they maintain that the Secretary’s action in promulgating the regulation has no rational basis and is, therefore, arbitrary and capricious and an abuse of discretion under the APA, 5 U.S.C. § 706(2)(A). Second, they argue that the regulation violates the Medicare statute, 42 U.S.C. § 1395x(v)(l)(A) because, among other things, it fails to reimburse providers for reasonable costs of necessary services as required; it shifts the burden of “Medicare-related” actual costs to non-Medicare patients; and it fails to reimburse indirect costs as provided by the Medicare Act. Finally, plaintiffs’ claim that the regulation is procedurally defective because it was promulgated in violation of the rule making requirements of the APA, 5 U.S.C. § 553. The first and second challenges involve substantive issues. The Court will address each of these claims separately.

Violation of the APA

Plaintiffs claim the Secretary violates the arbitrary and capricious standard of the APA, 5 U.S.C. § 706(2)(A) by offering an explanation for the regulation based on inadequate evidence (the Westat Study) and by failing to consider all relevant data pertinent to the malpractice problem. The Secretary argues that the Westat Study merely confirms conclusions already deduced by the agency from a full study of the malpractice problem conducted over a four year period beginning in 1973, see Defendants’ Brief 9, but not made a part of the administrative record. Moreover, the Secretary takes the position that the Westat Study supports the Malpractice Rule and is a reliable basis for the Secretary’s action.

The applicable standard of review, § 706(2)(A) of the APA, provides:

that the reviewing court shall hold unlawful and set aside agency action, findings, and conclusions found to be (A) arbitrary and capricious, an abuse of discretion or otherwise not in accordance with law____ Camp v. Pitts, 411 U.S. 138 at 142 [93 S.Ct. 1241 at 1244, 36 L.Ed.2d 106] (1973).

This standard is a highly deferential one. It presumes agency action to be valid. Citizens to Preserve Overton Park v. Volpe, 401 U.S. 402, 91 S.Ct. 814, 28 L.Ed.2d 136 (1971). This is not to say, however, that the Court must rubber-stamp the agency decision as correct. To do so would render the review process superfluous. Ethyl Corp. v. Environmental Protection Agency, 541 F.2d 1, 34 (D.C.Cir.1976). Therefore, the Court must consider whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. Citizens to Preserve Overton Park, supra. Although the Court is not permitted to substitute its judgment for that of the agency, it must make a substantial inquiry into the facts to insure that the agency demonstrates a rational connection between the facts found and the choice made. Id., See also, United States Lines, Inc. v. Federal Maritime Commission, 584 F.2d 519 (D.C. Cir.1978). Furthermore, the validity of the agency’s action must be sustainable on the administrative record made. Camp v. Pitts, supra, 411 U.S. at 143, 93 S.Ct. at 1244 and Almay, Inc. v. Califano, 569 F.2d 674, 681 (1977) (where the court held that since informal rulemaking procedures are much more susceptible to abuse, it becomes all the more important that a rational basis for the agency’s decision be found in the facts of the record). With this limited scope of review in mind, the Court has searched the rulemaking record and can find no rational basis for the regulation.

The Westat Study indicated that Medicare patients represented approximately 12% of the study’s 2,637 malpractice claims where source of payment (Medicare, Medicaid or self-payment) was identified. In addition, the study indicated that of $35,680,-971 in identified malpractice awards, 5.1% or $1,820,303 represented awards to Medicare patients. Westat Report at 5-9. Further evidence “showed” that in years prior to 1978, Medicare beneficiaries utilized at least 30% of all inpatient hospital services. Record, Vol. 1, tab 7 at 3. From these figures, the Secretary determined that under the utilization method of apportioning costs, Medicare was reimbursing costs at more than six times its portion of total malpractice losses against which such insurance was purchased. This, the Secretary maintains, justified her action in formulating the rule, and “conclusively” established what she already knew from her previous study of the malpractice problem. The administrative record reveals, however, that the agency never mentioned any study other than the Westat Study in its Notice of Proposed Rulemaking or in the Basis and Purpose Statement. There is no copy or analysis of the “full study” referred to in the Secretary’s memorandum in the rulemaking record. The agency never identified at any time prior to the issuance of the regulation any other source as playing a part in its thinking, consideration, or decision to issue the challenged regulation. Consequently, since the regulation must be sustained on the administrative record alone, a rational basis for the regulation must be found in the Westat Study. For the reasons cited in St. James Hospital v. Heckler, supra, the Court believes that the Westat Study is an inadequate foundation upon which to build the conclusion that there was a rational connection between the facts found and the choice made.

In St. James, Judge Will focused on the warnings found in the Westat Study itself:

the authors of the Westat Study cautioned against extrapolation of wide-ranging conclusions and noted that “conclusions must be drawn very cautiously because of the possibility of biased data.” The authors note two potential sources of bias in the sample of claims. First, many claims had multiple defendants who were not always represented by participating companies and although reporting companies probably knew the total number of defendants “they could not provide us with specific information about their characterizations.” The second potential source of bias is that some providers, especially hospitals, are self-insuring and thus their claims had “no chance of turning up in the data base.” (Citations omitted.)

At 766. Judge Will went on to cite Almay, Inc. v. Califano, supra, at 674, 677, 682 where:

the court considered whether the FDA’s reliance on a “flawed survey,” about which the Director of the FIC’s Bureau of Consumer Protection who sponsored and designed the study warned that the results should be used with caution, constituted a violation of the arbitrary and capricious standards of 5 U.S.C. § 706(2)(A). The court held that reliance on the survey was a “clear error of judgment.” In the present case, reliance on the Westat Study is similarly an error of judgment. (Citations omitted.)

At 766. In addition to these criticisms, it should be noted that the Westat Study was not designed to analyze the frequency or size of claims comparing Medicare and non-Medicare patients or to distinguish claims against hospitals from claims against other health care providers, even though claims against physicians, dentists, and nursing homes were included in the data base.

Standing alone, this fact would be sufficient to invalidate the Secretary’s reliance on Westat. When considered with the author’s stated limitations on the use of the study and their warnings of statistical bias in the sample, it can only be concluded that the regulation lacks a rational basis and cannot be sustained.

Violation of the Medicare Statute

The statute affords the Secretary some discretion in prescribing regulations that determine the computation of the reasonable cost of services. But her discretion is not unlimited and certainly not beyond judicial review. The Court would not, of course, substitute its judgment for that of the Secretary, but if her interpretation of reasonable cost does not comport with statutory requirements then it should not be upheld. The Court cannot “rubber-stamp” administrative decisions that are inconsistent with statutory mandates. See Bureau of Alcohol, Tobacco, and Firearms v. FLRA, 464 U.S. 89, 104 S.Ct. 439, 444, 78 L.Ed.2d 195 (1983).

Prior to the challenged regulation, the Secretary had aggregated all A & G costs, including malpractice insurance. Plaintiff argues that there is no logical reason to separate malpractice insurance from other insurance and other A & G costs. By so doing, the Secretary ignores the fact that insurance premiums are paid regardless of whether actual losses are incurred or not, and that malpractice insurance is designed to protect, necessarily, the assets of a hospital against potential catastrophic loss. See Mt. Carmel, supra, at 1316-17.

Earlier in this Opinion, the Court discussed the effects of the new regulation on hospital malpractice reimbursement. These effects prompted Judge Fullam to observe that the Secretary has chosen “an allocation formula which is least likely to reflect reality ... a formula which seemingly guarantees that the statutory mandate will inevitably be violated in most cases.” Abington Memorial Hospital, supra, at 1089. This is so because:

(1) The ratio between malpractice claims paid on account of Medicare patients and malpractice claims paid on account of non-Medicare patients over the most recent five-year period has very little, if any, relationship to the hospital’s current cost of maintaining malpractice protection. (2) The “national average” (currently estimated at 5.1%) of that ratio has even less bearing on the current malpractice coverage costs of any particular hospital. (3) The data relied upon in the Westat Report, including the data which produced the 5.1% figure, included both payments made to satisfy the liability of hospitals and claims paid to satisfy the liability of physicians. There is no evidence to support the conclusion that these combined payments provide reliable information about the malpractice payment experience of hospitals. Indeed, there is reason to believe that they do not____

Id. at 1089.

The Court emphasizes that the Secretary is not, of course, limited to any one method of reimbursement and may use different methods for different costs and circumstances. This the statute clearly allows. 42 U.S.C. § 1395x(v)(l)(A). But when, as here, the chosen method neither assures that Medicare costs will not be borne by non-Medicare patients nor that hospitals will be reimbursed the reasonable costs of their services (“actual costs minus those found to be unnecessary in the efficient delivery of health services”), then the regulation does not carry out the mandate of the Medicare statute and is invalid.

Plaintiffs’ final challenges to the Malpractice Rule involve procedural issues. Plaintiffs argue that the Malpractice Rule is procedurally invalid because (1) the Secretary violated the mandatory notice and comment procedures of the APA; and (2) the Secretary failed to respond adequately to the comments which were received. Since the Court has determined that the regulation is substantively defective, in violation of both the APA and the Malpractice Act, it need not address plaintiffs’ claims that the Malpractice Act is also procedurally defective.

Conclusion

The medical malpractice reimbursement regulation is substantively defective and violates both the Administrative Procedure Act and the Medicare Act. Accordingly, and for the reasons outlined above, the plaintiffs’ motion for summary judgment is granted. Defendant’s motion for summary judgment is denied. The matter is hereby remanded to the Secretary for further consideration in accordance with this Opinion.

      . This exhibit consists of an affidavit and appendices which are not part of the rulemaking record. It is well settled that agencies cannot use affidavits as post hoc rationalizations to justify their actions. Citizens v. Preserve Overton Park and Volpe, 401 U.S. 402, 419, 91 S.Ct. 814, 825, 28 L.Ed.2d 136 (1971). The Court does not believe that a plaintiff should be able to attack an administrative action by affidavit either, as the question before the Court in reviewing a rule promulgated by an agency remains whether or not the rule was properly promulgated and is supported by the record as a whole. Overton Park, supra; Camp v. Pitts, 411 U.S. 138, 140-142, 93 S.Ct. 1241, 1243-1244, 36 L.Ed.2d 106 (1973).
      Accordingly, the Court will GRANT defendant’s motion to strike Exhibit 23. The Court will disregard those portions of the plaintiffs’ argumerft which rely on the stricken Exhibit.

      . The Department of Health, Education and Welfare was replaced by the Department of Health and Human Services On May 4, 1980, pursuant to section 509(a) of the Department of Education Organization Act, Pub.L. 96-88, 93 Stat. 668, 42 F.R. 29642.

      . Payment to qualified providers under Medicare is made either directly or through fiscal intermediaries pursuant to contract with the Secretary. 42 U.S.C. § 1395h. At the close of its fiscal year, a provider submits a “cost report" which apportions costs between Medicare and non-Medicare patients. 42 C.F.R. § 405.406(b) and § 405.453(f). The intermediary conducts an audit and issues a determination of program reimbursement. An appeal from this determination may be taken to the Provider Reimbursement Review Board (PRRB or Board). 42 U.S.C. § 1395oo. The Board is bound by the Secretary's reimbursement regulations in determining such appeals. 42 U.S.C. § 405.1867.

      . The 1980 and 1981 cost reporting years are before the Court. The Social Security Amendments of 1983 (Pub.L. No. 98-21) enacted a new prospective payment reimbursement system applicable for cost reporting years beginning on or after October 1, 1983, but that system has no bearing on the resolution of the issues before the Court.

      . 42 C.F.R. § 405.452(b)(l)(ii). For example, three similarly situated hospitals with malpractice insurance premiums of $100,000 and a Medicare patient utilization rate of 40% would receive reimbursement, as follows:
      Hospital A with one claim paid to a Medicare patient will receive 100% reimbursement or $100,000; Hospital B with one claim paid to a non-Medicare patient will receive 0% or no reimbursement; Hospital C with no malpractice claims paid out will receive 5.1% or $5,100 reimbursement.
      Under the Medicare utilization method of reimbursement, each hospital would receive $40,000 from Medicare toward their medical malpractice premium.

      . The eight hospitals are Tulane Medical Center, Mercy Hospital, Saint Anne General Hospital, Willis-Knighton Medical Center, Lasalle General Hospital, East Jefferson General Hospital, Hood Memorial Hospital, and Opelousas Hospital.

      . Plaintiffs’ Exhibit 6 sets forth each hospital’s Medicare utilization rate an approximate amount in controversy for each cost reporting year at issue.

      . There is no jurisdictional problem in the present case because plaintiffs have satisfied all the requirements of 42 U.S.C. § 1395oo (f), upon which jurisdiction is predicated. Satisfaction of those requirements, however, requires the passage of a considerable period of time, which explains why this suit was not brought until four years after the Rule was promulgated.

      . “Reasonable cost” is defined in the statute as the "cost actually incurred excluding therefrom any part of the incurred cost found to be unnecessary in the efficient delivery of needed health services.” 42 U.S.C. § 1395x(v)(l)(A). Congress directed the Secretary of HHS to further define "reasonable cost” by issuing reimbursement regulations.

      . The Westat Study was based on data obtained from nine private insurance carriers selected by the American Insurance Association, covering all claims closed during the period from July 1, through October 1, 1976. Insureds from these nine companies were involved in 84% of all claims closed by private carriers in 1976.

      . As stated in Westat, its general purposes were: to undertake an analysis of the frequency and types of claims and comparisons for economic losses____ [T]he objective is a detailed examination of the causes of injuries that lead to claims as well as legal systems and patient characteristics that are related to the occurrence of claims.
      The purpose of the analysis of causes of injuries is to provide information that can be used to develop injury prevention programs as a policy approach to reduce the occurrence of malpractice incidents. The purposes of analysis of size awards are (1) to determine the importance of economic losses in determining award amounts and (2) to examine selected characteristics such as changes in the legal system that affect the size of awards. Plaintiffs’ Exhibit 21 at 1-3 (emphasis supplied).
      The study specifically stated that “it is not the explicit purpose of this study to make national yearly estimates." Id.

      . The Secretary cites the following language from Ethyl Corp. v. EPA, supra, at 37-38 for the proposition that she need not disregard the Westat data merely because of the possible uncertainties and margin of error in the report:
      "We need not see a single dispositive study that fully supports the Administration’s determination. Science does not work that way; nor, for that matter does adjudicatory fact finding.”
      Taken out of context, this language might support the Secretary’s position. A full reading of the case, however, reveals a distinct difference from the instant case. The Administrator’s decision in Ethyl Corp. was based on "the inconclusive but suggestive results of numerous studies." Id. (Emphasis supplied.) The Ethyl court explained that:
      [b]y its nature, scientific evidence is cumulative: the more supporting, albeit inconclusive, evidence available, the more likely the accuracy of the conclusion. If one single study or bit of evidence were sufficient independently to mandate a conclusion, there would, of course, be no need for any other studies. Only, rarely, however, is such limited study significant. Id.


source: Caselaw Access Project

author: FULLAM, District Judge.

license: Public Domain

text:
    Clifford T. COSTELLO v. UNITED PARCEL SERVICE, INC.
    Civ. A. No. 84-4869.
    United States District Court, E.D. Pennsylvania.
    Nov. 7, 1984.
    Supplemental Memorandum Nov. 9, 1984.
    Stephen Console, Philadelphia, Pa., for plaintiff.
    Martin Wald, Philadelphia, Pa., for defendant.
   MEMORANDUM AND ORDER

FULLAM, District Judge.

This action was originally filed in the Philadelphia Court of Common Pleas, and removed to this court on the basis of defendant’s assertions of both diversity and federal question jurisdiction. Plaintiff concedes that the removal was proper under diversity jurisdiction, but does not concede that his claims arise under federal law. The defendant has filed a Motion for Summary Judgment, to which the plaintiff has filed a response.

Plaintiff was employed by the defendant for some 13 years until, in September 1983, he was discharged. The employment relationship was governed by a collective bargaining agreement between the employer-defendant and Local 623 of the Teamsters Union; the collective bargaining agreement included a detailed grievance mechanism.

Pursuant to the collective bargaining agreement, the union filed a grievance protesting plaintiff’s discharge, and pursued the claim through arbitration, but on October 4, 1983, the grievance was finally denied. Almost one year later, in September 1984, plaintiff filed the present lawsuit, in which he claims that the stated reason for the discharge (dishonesty, in causing personal parcels to be delivered without payment, and in charging a customer’s account with his personal shipping costs, without the customer’s consent) was a mere pretext, and that the real reason for the discharge was retaliation against plaintiff for filing a worker’s compensation claim. Plaintiff alleges that the employer not only wished to retaliate against plaintiff for filing a claim, but also wished to escape anticipated liability for plaintiff’s prolonged illness and/or disability. Count I of plaintiff’s Complaint purports to allege the state-law tort of “wrongful discharge” in violation of public policy. Count II asserts that plaintiff had “an implied contract of continued long-term employment,” that the discharge decision was made in bad faith, and that the discharge “constituted an unlawful breach by defendant of the contract of employment between defendant and plaintiff.”

While plaintiff’s counsel has struggled valiantly to find an escape, I am compelled to conclude that settled principles of federal labor law mandate dismissal of this action. Generally speaking, § 301 of the National Labor Relations Act, 29 U.S.C. § 185, provides the exclusive remedy for violations of collective bargaining agreements. No employee protected by a collective bargaining agreement can sue the employer except after pursuing his grievance remedies under the contract, and either obtaining successful judicial review of the arbitration award, or establishing that his right of fair representation was violated. In the present case, there is no contention that plaintiff was not fairly and properly represented in the grievance and arbitration proceedings; moreover, any challenge to the arbitration award was required to be filed within six months after October 4, 1983, when the award was rendered.

There are, it is true, a few narrow exceptions to the general doctrine of federal preemption. For example, covered employees are not limited to § 301 litigation to obtain relief from racial discrimination, Alexander v. Gardner-Denver, 415 U.S. 36, 94 S.Ct. 1011, 39 L.Ed.2d 147 (1974). And an employee is not precluded from litigating various independent torts under state law. See, e.g., Linn v. U.S. Plant Guard Workers, 383 U.S. 53, 86 S.Ct. 657, 15 L.Ed.2d 582 (1966) (defamation); Automobile Workers v. Russell, 356 U.S. 634, 78 S.Ct. 932, 2 L.Ed.2d 1030 (1958) (black-listing); Farmer v. United Brotherhood of Carpenter and Joiners, 430 U.S. 290, 97 S.Ct. 1056, 51 L.Ed.2d 338 (1977) (intentional infliction of emotional distress).

When, however, the harm sought to be addressed is that stemming from discharge or other disciplinary action, there are few, if any, exceptions to the preemption principle. The case which is perhaps most helpful to plaintiff is Garibaldi v. Lucky Food Stores, Inc., 726 F.2d 1367 (9th Cir.1984). In that ease, plaintiff had been employed as a truck driver delivering milk. He observed that a load of milk he was scheduled to deliver had spoiled. Allegedly, he was told to deliver the milk anyway, but instead complained to the local health authorities— an act of “whistle-blowing” for which, allegedly, he was fired. He unsuccessfully pursued a grievance and, a year or so later brought suit for damages. Treating the case as one of first-impression, the Ninth Circuit Court of Appeals held that the action could be maintained. The court reasoned that the state interest in protecting the public health was very strong, and outweighed whatever federal interest there might be in assuring uniform interpretation and implementation of national labor policy. Holding that Garibaldi’s state-law claims were not preempted by § 301, the court remanded the action to the state courts.

Soon afterward, however, the same court decided Olguin v. Inspiration Consolidated Copper Co., 740 F.2d 1468 (9th Cir. 1984), in which plaintiff alleged that he was discharged for complaining about violations of mine-safety requirements, and also for “concerted activity” involving such violations. The Olguin court upheld dismissal of the action, noting that mine-safety regulations were a federal matter, and that the issues sought to be raised fell squarely within the employer-employee, collective bargaining, context preempted by § 301.

It is not at all clear that Garibaldi would be followed by the Third Circuit Court of Appeals; but, assuming Garibaldi was correctly decided, I am persuaded that the present case more nearly resembles Olguin than Garibaldi. Plaintiff correctly asserts that the Commonwealth of Pennsylvania has a legitimate interest in upholding the proper enforcement of its workers compensation laws, and thus in providing a remedy against retaliation for filing a compensation claim. But vindication of that interest is not-significantly impeded by § 301 preemption. The “public policy” involved is directly related to the employment relationship itself. Plaintiff is attempting to sue his employer for damages for wrongful discharge, a matter governed entirely by the collective bargaining agreement.

Plaintiff seems to argue that the issue of retaliation was not, and could not have been, considered in the grievance proceeding. Indeed, plaintiffs argument can be interpreted as asserting that the collective bargaining agreement provided virtually no protection against wrongful discharge, since, it is contended, the contract empowered the employer to discharge plaintiff at will. I believe this is an unduly strained interpretation of the collective bargaining agreement.

Article 43 of the collective bargaining agreement governs “discharge or suspension”. Its language is, concededly, not a model of clarity. The pertinent provisions are as follows:

“The Employer shall not discharge nor suspend any employee without just cause until the case has been discussed with the Business Agent in person, where practical except where the provisions of this Article provide for discharge, but in respect to suspension or discharge shall give at least one warning notice of the complaint against such employee to the employee, in writing, and a copy of the same to the Union and Job Steward affected, except that no warning notice need be given to an employee before he is discharged if the cause of such discharge is ... proven theft or dishonesty—
“Discharge must be by proper written notice to the employee and the Union affected. Any employee may request an investigation as to his discharge or suspension. Should such investigation prove that an injustice has been done an employee, he shall be reinstated. Appeal from discharge, suspension or warning notice must be taken with ten (10) days by written notice and a decision reached within thirty (30) days from the date of discharge, suspension or warning notice.”

Read literally, the first sentence of Article 43 can be interpreted to suggest that the employer does not need a reason for discharging an employee, so long as the matter is discussed in advance with the business agent. (On the other hand, if that strained interpretation were adopted, it is not at all clear that there would be anything to discuss.) A more reasonable interpretation of the full text of Article 43 is that it provides a graduated system of warnings and penalties which may culminate in the ultimate penalty of discharge; that discharge for a first offense is permissible only for the stated reasons (including the one relied on in plaintiffs case); and that the grievance mechanism is available in all discipline cases to remedy “injustice”. Any doubt as to the correctness of this interpretation is removed when Article 41, the grievance section of the agreement, is reviewed. Section 2 of Article 41 provides:

“A grievance is hereby jointly defined to be any controversy, complaint, misunderstanding or dispute arising as to interpretation, application or observance of any of the provisions of this Agreement or Supplements hereto.”

The balance of that article plainly contemplates that discharge decisions are subject to the grievance procedure — indeed, that such grievances are to be given priority handling.

Thus, the final decision as to plaintiffs grievance plainly established that plaintiff was found guilty of the dishonest acts alleged. It is inconceivable that a contention that the stated ground for dismissal was pretextual, and that the real reason for discharge was retaliation because of a compensation claim, would have been rejected as beyond the scope of the grievance proceeding (the present record does not make clear whether such a contention was actually advanced on plaintiffs behalf). Nor is there any genuine likelihood that such a claim, if meritorious, would have had less appeal to the grievance adjudicators than to a court in independent litigation. In short, there is no justification for attempting to carve out an exception to the preemption rule in this case.

Moreover, the policies underlying the federal preemption doctrine and collective bargaining concepts (e.g., uniformity, informality and expedition in settlement of disputes, accommodation to the “law of the shop”, etc.) would be disserved if litigation of this kind were permitted to proceed independently of § 301. There is at least an arguable “public policy” component in most discharge decisions.

The defendant’s Motion for Summary Judgment will be granted.

SUPPLEMENTAL MEMORANDUM

On November 7, 1984,1 filed a Memorandum and Order dismissing this action, on the ground that plaintiff’s exclusive remedy was that provided in § 301 of the National Labor Relations Act (not now available, for a variety of reasons). Shortly after that Memorandum was filed, the November 6, 1984 edition of United States Law Week was distributed. One of the cases reported therein is Midgett v. Sackett-Chicago, Inc., 105 Ill.2d 143, 85 Ill.Dec. 475, 473 N.E.2d 1280 (Ill.Sup.Ct.1984), in which a divided Supreme Court of Illinois held that, under Illinois law, employees covered by collective bargaining agreements may nevertheless sue their employers in tort, on allegations of discharge from employment in retaliation for filing worker’s compensation claims.

The Illinois court reasoned that “at will” employees had such a right, and therefore the same right must be extended to employees covered by collective bargaining agreements. I respectfully disagree with this reasoning. Employees covered by collective bargaining agreements do not need a separate tort action in order to protect their rights, but may press their grievances under the union contract. Non-covered employees, on the other hand, would be without a remedy unless permitted to sue for discharges in violation of public policy.

A further reason advanced by the Illinois court majority is that punitive damages are not available in the collective bargaining context. While this may be true, I am not convinced that this additional remedy is of sufficient import to tip the balance. In short, I agree with the dissenters in the Midgett case, and adhere to the views previously expressed.

I am filing this Supplemental Memorandum at this time, so as to render it unnecessary for either party to file a motion for reconsideration in light of the newly reported Illinois case.

      . By the same token, plaintiffs breach of contract claim must also fail. To the extent that the alleged contract is inconsistent with the collective bargaining agreement, the latter must prevail. See J.I. Case v. NLRB, 321 U.S. 332, 64 S.Ct. 576, 88 L.Ed. 762 (1944).


author: LOUGHLIN, District Judge.

text:
    TOWN OF HOOKSETT SCHOOL DISTRICT v. W.R. GRACE AND COMPANY.
    No. C 83-761-L.
    United States District Court, D. New Hampshire.
    Nov. 30, 1984.

      Michael P. Hall, Brown & Nixon, P.A., Manchester, N.H., Edward J. Westbrook, Flatt & Fales, Charleston, S.C., Daniel A. Speights, Hampton, S.C., for plaintiff.
    Rodney L. Stark, Stark & Peltonen, Manchester, N.H., Robert E.K. Morrill, Hall, Morse, Gallagher & Anderson, Concord, N.H., for defendant.
   ORDER ON MOTION TO DISMISS

LOUGHLIN, District Judge.

This diversity action is brought by the Town of Hooksett School District against W.R. Grace and Company, a foreign corporation, which sold and installed asbestos products in one of the Plaintiff’s schools. Plaintiff seeks a judgment of one hundred and fifty thousand dollars ($150,000.00) alleging harm to its physical property and breach of warranty arising from the sale and installation of unreasonably dangerous asbestos products by the Defendant in 1958. Furthermore, Plaintiff seeks an award of one million dollars ($1,000,000.00) in punitive and exemplary damages.

In 1981, the United States Justice Department published “The Attorney General’s Asbestos Liability Report to the Congress”, which, the Plaintiff claims, alerted it to the unreasonable danger posed by the acoustical and fireproofing materials such as those purchased from and installed by W.R. Grace and Company. The report suggested that the asbestos industry knew of the dangers associated with asbestos since the 1930’s and that suit might be brought against manufacturers by those who purchased the asbestos products.

Plaintiff claims that asbestos fibers, like those in Defendant’s products, have been demonstrated to cause lung cancer and other serious diseases. According to the Plaintiff, the asbestos products in the school released and threatened to release asbestos fibers contaminating its air, walls, floors, carpeting and upholstery as well as students and school personnel. To alleviate the harm, the Plaintiff had to remove and replace the asbestos insulation and replace all the contaminated property. Defendant has advanced several reasons why the complaint should be dismissed. The court turns now to examine each of the Defendant’s arguments.

First, the Defendant has moved that this action be dismissed because the Plaintiff failed to comply with the applicable statutes of limitation. RSA 508:4-1 requires that personal actions be brought within six years of the date of accrual. RSA 382-A:2-725(l) requires that actions for breach of contract be filed within four years from the date of accrual. At first glance it would appear that Plaintiff’s suit is barred under either statute as suit was not filed until twenty-three years after the allegedly dangerous product was installed in the Plaintiff’s school. However, New Hampshire law instructs otherwise.

In New Hampshire, the usually absolute bar of the statute of limitations is barred in two instances. First, the limitations period will not begin to run against the Plaintiff until such time as he discovers, or in the excercise of reasonable diligence should have discovered, that he has been injured by the Defendant’s acts or omissions. EIMCO-BSP Services Company v. Davison Construction Company, 547 F.Supp. 57, 59 (D.N.H.1982). Secondly, the limitations period will be tolled whenever the Defendant has fraudulently concealed from the Plaintiff the very fact that he has a cause of action. Id.

The parties do not dispute that the installation of the asbestos products took place in 1958 and that suit was not filed until December 14,1983 — twenty-five years later. The Plaintiff claims that it could not reasonably have been expected to know of the harm done to his property before 1981. Plaintiff explains that it was unaware of its injuries because the Defendant fraudulently concealed the hazards associated with asbestos. It was not until the publication of the Justice Department Report that the Plaintiff had sufficient information to appreciate the risks associated with asbestos. In stark contrast, Plaintiff claims that the Defendant had this information since the 1930’s and that it failed to pass the information along to the Plaintiff and other consumers but instead made false representations concerning the adaptability of asbestos to the school environment. Suffice it to say, Plaintiff’s allegations are sufficient to toll the limitations period under both the “discovery rule” and the doctrine of fraudulent concealment.

In Counts I and II of its complaint, Plaintiff asserts claims of negligence and strict liability against the Defendant. The Defendant moves to dismiss both counts on the grounds that Plaintiff’s injuries are purely economic — i.e., removal costs — and hence are not recoverable in tort. The court turns now to consider the merits of this claim.

The purpose of a motion under Rule 12(b)(6) is to test the formal sufficiency of the statement for relief. * * * The motion is available to test a claim for relief in any pleading____ * * * The Rule 12(b)(6) motion addressed itself solely to the failure of the complaint to state a claim and is not designed to correct inartistic pleadings or to force complaince with the requirements of Rule 10 as to the form of the pleadings.

Wright & Miller, Federal Practice and Procedure: Civil § 1356. The court’s review under Rule 12(b)(6) is of a limited scope. The court will not dismiss the complaint unless “it appears beyond doubt that the Plaintiff can prove no set of facts in support of his claim which would entitle him to relief.” Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 101-102, 2 L.Ed.2d 80 (1957). For the purposes of ruling on a motion to dismiss the court accepts the non-moving party’s version of the facts and interprets them in the light most favorable to the same. Id.

In essence, the success of Defendant’s motion to dismiss Counts I and II requires that Plaintiff’s injuries be characterized as purely economic. As the body of law in the field of strict liability has developed, the jurisdictions have split on the question of whether economic loss is recoverable in strict liability. One school of thought, represented by the seminal Santor v. A & M Karagheusian, Inc. decision, hold that one may maintain a strict liability action for pure economic loss even where no personal injury or property damage results. 44 N.J. 52, 207 A.2d 305 (1965). In contrast, Seeley v. White Motor Company holds that in actions for strict liability or negligence a manufacturer’s liability is limited to damages for physical injuries and there is no recovery for economic loss alone. 63 Cal.2d 9, 45 Cal.Rptr. 17, 403 P.2d 145 (1965). In New Hampshire, the latter view prevails; “the doctrine of strict liability does not apply beyond the area of physical harm caused to the user or his property.” Hydraform Products Corp. v. Lynn Products Co., No. C79-221-L, slip op. at 4 (D.N.H. July 15, 1980). Hence, if Plaintiff seeks recovery for a purely economic loss, its claims must fail. Our inquiry at this point turns to characterizing the nature of the Plaintiff’s injury.

“Economic loss” has been defined as “the diminution in the value of the product because it is inferior in quality and does not work for the general purposes for which it was manufactured and sold. Pennsylvania Glass Sand v. Caterpillar Tractor Co., 652 F.2d 1165, 1170 (3d Cir. 1981) quoting Comment, Manufacturer’s Liability to Remote Purchasers for “Economic Loss” Damages — Tort or Contract?, 114 U.Pa.L.Rev. 539, 541 (1966). “This does not mean, however, that every prayer for relief that seeks the costs of repairing a damaged product entails the type of economic loss traditionally encompassed within warranty law.” Pennsylvania Glass Sand v. Caterpillar Tractor Co., supra at 1170.

Dean Prosser has emphatically noted the distinction between economic loss and physical injury:

There can be no doubt that the seller’s liability for negligence covers any kind of physical harm, including not only physical injuries, but also property damage to the defective chattel itself, as where an automobile is wrecked by reason of its own bad brakes____ But where there is no physical damage, and the only loss a pecuniary one, through the loss of the value of use of the thing sold, courts have adhered to the rule ... that purely economic interests are not entitled to protection against mere negligence.

Id., at 1170, n. 15, quoting W. Prosser, Law of Torts § 101, at 665 4th ed. (1971) (footnotes omitted) (emphasis added).

In the case at bar, the Plaintiff alleges that asbestos fibers contained in the Defendant’s product were released into the school’s atmosphere thus contaminating the air, the carpeting, the curtains, other school furnishings, personnel and occupants. Alerted to the unreasonably dangerous propensities of the asbestos, the Plaintiff claims it had no choice but to take immediate action to remove and replace all that which had been contaminated by the airborne fibers.

The asbestos was but a single ingredient of the acoustical insulation and fireproofing spray applied at the school. Yet, it managed to contaminate the remainder of the insulator, the curtain, walls and carpets of the school among other things. Such contamination constitutes a physical injury to Plaintiffs premises; where a defect in Defendant’s product — i.e., the asbestos— creates a cognizable safety hazard, the resulting injury to property is as actionable in strict liability and negligence as personal injury resulting from the defect would be; Prosser, The Assault on the Citadel, 69 Yale L.J. 1099, 1143 (1960); Restatement (Second) of Torts § 402 A (imposing liability on manufacturer for physical injury inflicted upon the consumer or his property). That the measure of the Plaintiff’s damages is economic does not transform the nature of his injury into a strictly economic loss. The gist of Plaintiff’s strict liability and negligence counts is “not that the Plaintiff failed to receive the quality of product he expected, but that the Plaintiff has been exposed, through a hazardous product, to an unreasonable risk of injury to his person or his property”. Pennsylvania Glass Sand v. Caterpillar Tractor Co., 652 F.2d 1165, 1170 (3rd Cir.1981). As such, Counts I and II are properly actionable in tort. Id. Accordingly, Defendant’s motion to dismiss both counts is denied.

Next, Defendant moves to dismiss Counts III and IV of the complaint. Counts III and IV of the complaint seek redress for breach of express and implied warranties. In addition to the usual warranties of merchantability and fitness for ordinary purposes, Plaintiff alleges Defendant made specific express warranties to the Plaintiff and others through the advertising media. These advertisements, we are told, extolled the virtues of asbestos, its safety and its particular suitability for use in school facilities. Finally, Plaintiff alleges that Defendant knew the purposes for which Plaintiff sought the product and further knew that Plaintiff was relying on Defendant’s expertise to choose a suitable product, succinctly, Plaintiff's last warranty claim is one of breach of warranty of fitness for a particular purpose. Defendant opposes the warranty counts on the grounds that Plaintiff’s claims are barred by the statute of limitations and that Plaintiff is barred by its failure to give Defendant the requisite notice which is a precondition to any breach of warranty action under the Uniform Commercial Code.

Defendant’s first argument lacks merit. As already noted, New Hampshire’s statutes of limitations subsume a “discovery rule” which provides that the statute will not begin to run until such time as the Plaintiff knew or, in the exercise of reasonable diligence, should have known that it had a cause of action against the Defendant. Moreover, the statute of limitations will be tolled where Plaintiff demonstrates that Defendant fraudulently concealed the very existence of Plaintiff’s cause of action. Suffice it to say, in light of the facts as pled, either of the aforementioned theories is available to the Plaintiff to defeat Defendant’s claim.

Defendant’s second argument requires a familiarity with New Hampshire’s Commercial Codes, as codified RSA 382-A. The Code, in pertinent part, provides that:

(3) where a tender has been accepted
(a) the buyer must within a reasonable time after he discovers or should have discovered any breach notify the seller of breach or be barred from any remedy....

RSA 382-A: 2-607. Three policy considerations underlie the requirement of notice before filing a breach of warranty action.

The first and most important reason for requiring notice is to enable the seller to make adjustments or replacements or to suggest opportunities for cure to the end of minimizing the buyer’s loss and reducing the seller’s own liability to the buyer.
The second policy behind the notice requirement is to afford the seller an opportunity to arm himself for negotiation and litigation.
‡ * * * * *
A final and less important policy behind the notice requirement is to give the Defendant that same kind of mind balm he gets from the statute of limitations. There is some value in allowing a seller, at some point, to close his books on goods sold in the past and to pass on to other things.

J. White & R. Summers, Uniform Commercial Code § 11-9, p. 344 (2d ed. 1972). “[T]he rule requiring notification is designed to defeat commercial bad faith, not to deprive a good faith consumer of his remedy.” RSA 382-A: 2-607, Uniform Laws Comment 4 (1961).

There is some authority for the proposition that the defense of notice will not bar an action on an implied warranty. See Wights v. Staff Jennings, Inc. 241 Or. 301, 405 P.2d 624 (1965). However, that does not appear to be the case in New Hampshire. In Elliott v. Lachance, the New Hampshire Supreme Court held that the implied warranties of mérchantability and fitness for a particular purpose “are subject to the Uniform Commercial Code provisions as to notice (RSA 382-A: 2-607, 3(a)), disclaimer (Id., s. 2-316) and to whatever requirement of privity is imposed by Id., s. 2-318.” 109 N.H. 481, 484, 256 A.2d 153 (1969).

In the instant case, Defendant claims that the Plaintiff never gave notice of its breach of warranty claims prior to filing suit and that the Plaintiffs failure to give the notice required by RSA 382-A: 2-607(3)(a) bars the warranty counts of this suit. Plaintiff appears to concede the argument; it does not allege that it ever gave notice prior to filing this suit, nor does it contest Defendant’s legal argument on the effect of failing to give prior notice of a breach of warranty claim. In any event, absent even an allegation of compliance with the Code’s warranty notice provisions, Plaintiff’s claim — on that premise — must fail.

Defendant next moves to dismiss Count V of the complaint for its purported failure to state a claim upon which relief can be granted. In that Count, Plaintiff presents allegations that the Defendant made fraudulent misrepresentations and fraudulently concealed certain facts in the course of its transactions with the Plaintiff which resulted in the sale of the asbestos products in question. As a result, Plaintiff claims to have suffered damages in the amount of $1,500,000.00.

To establish fraud, the Plaintiff must prove the Defendant made a fraudulent representation for the purpose or with the intention of causing the Plaintiff to act upon it. Hall v. Insurance Co., 91 N.H. 6, 10, 13 A.2d 157, 160 (1940). While the Plaintiff need not establish fraud in his pleadings, in order to withstand a motion to dismiss the plaintiff must specify the essential details of the fraud, and specifically allege the facts of the Defendant’s fraudulent actions. Jarvis v. Prudential Insurance Co., 122 N.H. [648] at 653, 448 A.2d [407] at 410 [1982], It is not sufficient for the Plaintiff merely to allege fraud in general terms. Belisle v. Belisle, 88 N.H. 459, 461 191 A. 273, 274 (1937)

Proctor v. Bank of New Hampshire, 123 N.H. 395, 399, 464 A.2d 263 (1983).

Plaintiff’s complaint provides the essential elements of a fraud. It alleges that the Defendant sold and installed hazardous asbestos products which were accompanied, throughout the transaction by representations that the products were safe for use in Plaintiff’s school. Those representations were apparently made in the form of express warranties conveyed through Defendant’s advertisements. Plaintiff further avers that the Defendant made those representations, knowing them to be false, for the purpose of inducing the sale and that the plaintiff was so persuaded to purchase and install the defective products to its detriment. The result, according to the Plaintiff, was the contamination of its school furnishings which in turn posed a health hazard to all occupants of the building.

Plaintiff goes on to allege that the Defendant fraudulently concealed knowledge of asbestos’ dangerous properties. While the missing of a material fact does not always constitute fraudulent concealment, where, the seller intentionally conceals or suppresses a known fact “for no other purpose than to deceive and mislead the [purchaser], and where, in such case the [purchaser] has no equal means of information, he must be regarded as deceived and defrauded.” Hanson v. Edgerly, 29 N.H. 343, 358 (1854). In the instant case, Plaintiff alleges that Defendant’s desire to “make the sale” motivated it to conceal the fact that it has reason to know that asbestos posed a serious health risk to all those who might come into contact with it. If the court accepts this allegation as true, as it must for our purposes here, Scheuer v. Rhodes, 416 U.S. 232, 236, 94 S.Ct. 1683, 1686, 40 L.Ed.2d 90 (1974), then the court must conclude that the Plaintiff has made out a claim for fraudulent concealment.

Our New Hampshire Supreme Court has said, in effect, that that which would be fraud if done by an individual constitutes conspiracy if done jointly and according to a common plan. Stevens v. Rowe, 59 N.H. 578 (1880). It should not be surprising, then, that Plaintiff’s complaint includes a claim for civil conspiracy. Defendant moves to dismiss that count on the grounds that Plaintiff failed to allege the essential elements of the cause of action and hence, cannot recover.

There is no such thing in this state as a civil action based upon conspiracy alone. Stevens v. Rowe, 59 N.H. 578. “The ground for recovery is found in the acts done, not the plans made. The declaration charges acts by, and the demurrer presents no question of the Plaintiff’s ability to prove his allegations.” Fitzhugh v. Railway, 80 N.H. 185, 189, 115 A. 803 (1921). Plaintiff alleges that Defendant and other asbestos manufacturers intentionally suppressed material information to defraud Plaintiffs.

Plaintiff next alleges that the sale of asbestos products by Defendant constitutes nuisance. Defendant moves to dismiss the charge on the grounds that it fails to state a claim upon which relief can be granted. “A private nuisance may be defined as an activity which results in unreasonable interference with the use and enjoyment of another’s property.” Robie v. Lillis, 112 N.H. 492, 494, 299 A.2d 155 (1972). The creator of the nuisance is responsible in his capacity as a property owner if a nuisance arises from the use of property in an unreasonable manner. Shea v. City of Portsmouth, 98 N.H. 22, 94 A.2d 902 (1953). But, in the instant case, Plaintiff seeks to recover from Defendant not in its capacity as a property owner, but in its capacity as a manufacturer. Furthermore, the Defendant’s ability to abate or relieve the complaint of nuisance, a hallmark of the cases listed in New Hampshire, are absent in the case at bar. For that reason, Plaintiff’s claims are more properly addressed herewith.

Similarly, Plaintiff’s trespass claim must also be dismissed. “[U]nder the established law of this state a trespass must be an intentional invasion of the property of another.” Moulton v. Groveton Papers Co., 112 N.H. 50, 54, 289 A.2d 68 (1972); See also, Carter v. Thurston, 58 N.H. 104, 107 (1877); White v. Suncook Mills, 91 N.H. 92, 98, 13 A.2d 729 (1940). In the instant case Defendants ownership and control of the asbestos products ceased at the time of sale. The Plaintiff purchased the product and then brought it onto its premises. Thus it was Plaintiff who was responsible for the presence of the asbestos in the school. As such, the circumstances of this case do not lend themselves to traditional notions of trespass. Whereas the alleged injury stems from a sale, Plaintiff’s claims are more adapted to contract law or strict liability. Accordingly, the trespass claim is dismissed from the suit.

Plaintiff further seeks to recover under theories of indemnification and restitution. Defendant moves to dismiss both on the grounds that Plaintiff fails to state a claim upon which relief can be granted.

In New Hampshire, it is well settled that one:

... can obtain indemnification, a complete shifting of liability against another where the indemnitee’s liability is derivative or imputed by law, see William H. Field Co. v. Nuroco Woodwork, Inc., 115 N.H. 632, 634, 348 A.2d 716, 718 (1975) (citing Morrissette v. Sears Roebuck & Co., 114 N.H. 384, 387, 322 A.2d 7, 19 (1974), or where an express or implied duty to indemnify exists. See, Sears Roebuck & Co. v. Philip, 112 N.H. 282, 286, 294 A.2d 211, 213 (1972); Wentworth Hotel v. Gray, Inc, 110 N.H. 458, 460-61, 272 A.2d 583, 585 (1970).

Consolidated Utility Equipment Services, Inc. v. Emhart Manufacturing Corp., 123 N.H. 258, 261, 459 A.2d 287 (1983). Thus, there can be two bases for an indemnification claim: tort or contract. The latter, in turn may involve either an express or implied contract to indemnify. Royer Foundry & Machine Co. v. New Hampshire Grey Iron, Inc., 118 N.H. 648, 392 A.2d 145 (1978).

Plaintiff’s memorandum in opposition to the motion to dismiss wholly fails to address Plaintiff’s indemnity claim. Hence, the court cannot be sure upon which basis the Plaintiff sought to rely. Even so, neither prove apposite. The contractual theories of indemnification are unavailable to the Plaintiff as it failed to allege the existence of either an express or implied contract to indemnify between the parties. As noted above, an indemnity claim would be if Plaintiff were found liable, in tort, to another on account of the presence of asbestos in the school and Plaintiff’s liability was purely passive. Sears Roebuck & Co. v. Philip, supra. However, Plaintiff has yet to be found liable to anyone for any claim arising out of asbestos exposure. Accordingly, Plaintiff’s indemnity claim is dismissed.

Similarly, Plaintiff’s restitution claim must also be dismissed. Once again the court notes that the Plaintiff’s memorandum in opposition to the motion to dismiss wholly fails to address Plaintiff’s restitution claim; it is as if it concedes defeat on the legal argument. However, both this court and the defendant perceive Plaintiff’s claim to be vested on Restatement of Restitution § 115 on the doctrine of “Emergency Assistance”. However, Plaintiff fails to demonstrate that the Plaintiff was performing Defendant’s duty after notifying the Defendant of its duty to act. Rather, Plaintiff appears to have been acting as a volunteer when it removed the asbestos; perhaps a prudent volunteer, but nonetheless a volunteer. Accordingly, the restitution claim is dismissed.

Plaintiff’s Count VIII requests an award of punitive and exemplary damages in the amount of one million dollars ($1,000,-000.00). Plaintiff contends that because the Defendant acted wantonly and recklessly — exhibiting bad faith and gross negligence by concealing and conspiring to conceal the dangerous qualities of asbestos— the court is justified in awarding such damages. Defendant moves to dismiss Count VIII on the grounds that punitive and exemplary damages are not recoverable in New Hampshire.

“Exemplary or punitive damages are generally defined or described as damages which are given as an enhancement of compensatory damages because of the wanton, reckless, malicious or oppressive character of the act ... ” Vratsenes v. N.H. Auto, Inc., 112 N.H. 71, 72, 289 A.2d 66 (1972), quoting 22 Am.Jur.2d Damages § 236 (1965). Where such damages are allowed, they are awarded not to compensate the injured party but to penalize the wrongdoer and deter potential wrongdoers from committing like offenses in the future. See, Curtis Publishing Co. v. Butts, 388 U.S. 130, 161, 87 S.Ct. 1975, 1994, 18 L.Ed.2d 1094 (1967).

However, in New Hampshire, the punitive function of exemplary damages has been rejected in forceful and colorful language. “the idea is wrong. It is an unsightly and unhealthy excrescence deforming of the symmetry of the body of the law.” Fay v. Parker, 53 N.H. 342, 382 (1872). This anathema is found in less vitriolic language in Bruton v. Corporation, 87 N.H. 304, 179 A. 185 (1935).

Vratsenes v. N.H. Auto Inc., supra. Nevertheless, the New Hampshire Supreme Court,

has recognized that in cases where the acts complied of were wanton, malicious, or oppressive, the compensatory damages for the resulting actual material loss can be increased to compensate for the vexation and distress caused the plaintiff by the character of defendant’s conduct.

Vratsenes v. N.H. Auto, Inc., supra, 112 N.H., at 72, 289 A.2d 66.

In sum “punitive” damages cannot be granted in this action as it is not the purpose of a civil action to “punish” the defendant. Similarly, “exemplary” damages cannot be granted in this action as it is not the purpose of a civil action to “make an example of” the defendant. Rather, the purpose of this action is to compensate the Plaintiff for its loss. As such, it is only fitting that an award of compensatory damages should be made to include compensation for the vexation and distress caused the Plaintiff by the character of Defendant’s allegedly wanton, malicious, or oppressive conduct. “[N]o damages other than compensatory are to be awarded. However, when the act involved is wanton, malicious, or oppressive, the compensatory damages awarded may reflect the aggravating circumstances.” Vratsenes v. N.H. Auto, Inc. supra at 73, 289 A.2d 66.

The Defendant’s last motion is one for a more definite statement of the allegations of fraud contained in Count V (fraudulent misrepresentation) and Count VII (conspiracy). The motion is made pursuant to Fed.R.Civ.P. 12(e). Granting of such motion is appropriate only when the pleadings are “so vague or ambiguous that a party cannot reasonably be required to frame a responsive pleading ...” Fed.R. Civ.P. 12(e), See Note to Subdivision (e). The motion is granted sparingly since it is not to be used as a substitute for discovery in trial preparation, Id., but is to be used only when a pleading is too general.

A claim alleging fraud or conspiracy must also meet the requirement of Fed.R.Civ.P. 9(b), “Pleading in Special Matters”, that in all averments of fraud, the circumstances constituting fraud shall be stated with particularity. The state of mind of the Defendant need only be generally averred. Fed.R.Civ.P. 9(b). This rule does not require the pleadings of detailed evidentiary matter, but it does require identification of circumstances constituting fraud. Trussell v. United States Underwriters, Ltd., 228 F.Supp. 757, 774 (D.C. Col.1964).

Trussell involved a fraud action by stock purchasers against stock brokers. The motion for more definite statement was made in alternative to a motion to dismiss pursuant to Rule 12(b) as in the present case. The plaintiff alleged insufficient circumstances of the fraud and so the motion was granted in order to allow the framing of a responsive pleading with the advice that the Plaintiff “should identify particular defendants with whom they dealt ... designate the occasions ... and designate what affirmative misstatements or half truths were directed [to which particular individuals] ...” Id, 774-775.

In Trussell the alleged fraud arose from a detailed series of sales transactions and the Defendant could not reasonably be expected to refute the charges without having been appraised of the details of who misrepresented which facts to whom and on what occasions those misrepresentations took place. In the instant case, the essential circumstances of the alleged fraud are different in that they do not occur within specific transactions between individuals but rather the misrepresentations were contained within advertisements attesting to the safety of the asbestos products. Those advertisements were promulgated by the Defendant and directed toward potential purchasers such as the Plaintiff. The Defendant is ably situated to know what advertisements were made around the date of the purchase in the instant case. Likewise, the Defendant is in a better position than the Plaintiff to know what medical and scientific tests had been conducted on asbestos products, what safety information was known, and what information was withheld. These are all matters peculiarly within the Defendant’s knowledge, and as such the requirement of particularity is somewhat relaxed. Trussell v. United Underwriters, Ltd., 228 F.Supp. 757 (D.C.Col. 1964). In any event, to require greater specificity from the Plaintiff would be to require it to plead evidence — something which it is not required to do. Id.

The Plaintiff, in sum, pled the circumstances of the alleged fraud and conspiracy with sufficient particularity to meet the requirements of Federal Rule of Civil Procedure 9(b). The Defendant has enough information on the circumstances of the alleged fraud and conspiracy to reasonably be expected to frame an answer to Counts V and VI. Therefore, the motion pursuant to Fed.R.Civ.P. 12(e) is denied

In conclusion, Defendant’s motion to dismiss is granted on the express and implied warranty counts and the nuisance, trespass, restitution and indemnification counts. The motion to dismiss the remaining counts is denied as is the motion for a more particular statement.

So Ordered.


text:
    NORTHERN SHIPPING COMPANY v. ARKWRIGHT BOSTON MANUFACTURERS MUTUAL INSURANCE COMPANY and Mutual Marine Office, Inc.
    Civ. A. No. 84-2349.
    United States District Court, E.D. Pennsylvania.
    Jan. 14, 1985.

      Michael Plevyak, West Chester, Pa., for plaintiff.
    John F. Biezup, Philadelphia, Pa., for defendants.
   MEMORANDUM AND ORDER

FULLAM, District Judge.

In this declaratory judgment action, the court is asked to resolve disputes concerning the interpretation of an insurance policy issued to the plaintiff stevedoring firm, and covering “stevedore liability”.

The insured plaintiff conducts stevedoring operations at various locations in Philadelphia, Pennsylvania, Camden, New Jersey, and Wilmington, Delaware. During 1978, pursuant to a contract with Compañía Sud Americana de Vapores (hereinafter “the steamship company”), plaintiff undertook to perform stevedoring services, viz., the discharge and service of vessels of the steamship company which were bringing fruit to this area during the 1978 Chilean fruit season. In all, plaintiff discharged cargo from these vessels on 23 separate occasions during 1978.

Subsequently, the various shippers or other persons interested in the cargo made numerous claims against the steamship company for loss or damage. Approximately 95 lawsuits were filed in state courts in New York, on behalf of various shippers, and against the steamship company. All of these actions were consolidated, and eventually removed to federal court in New York. The total claims asserted against the steamship company came to more than $1 million. The steamship company impleaded plaintiff as a third-party defendant in that action, in September 1979. Apparently, the shipping company has settled all of these claims for a total of about $365,000, and is pressing its claim against plaintiff for that amount.

Everyone agrees that the claims being asserted against plaintiff in the New York action relate to stevedoring activities as defined in the policy issued by the defendant. The problem arises from the fact that the defendant’s liability is limited to $250,000 “in any one occurrence or any series of occurrences directly or indirectly resulting from the same cause,” and the policy provides for a deductible of $10,000 applicable to “each accident or occurrence hereunder”. Plaintiff contends that the claims in question constitute a single “occurrence” for purposes of the deductible, since they all stem from, stevedoring services performed pursuant to a single contract, that covering the “1978 Chilean fruit season”. The defendant, on the other hand, contends that each of the 95 claims constitutes a separate occurrence, to which separate $10,000 deductibles should be applied.

A second area of dispute concerns the defendant’s obligation to defend the New York action, or to reimburse plaintiff its costs in defending the action. There is also a dispute concerning the proper allocation of legal costs in connection with a separate lawsuit brought by plaintiff against the City of Wilmington, Delaware, seeking indemnity (pursuant to a contract) for any amounts plaintiff is required to pay in the New York action stemming from its stevedoring activities in Wilmington.

I. LIABILITY TO PAY CLAIMS

The pertinent policy language is as follows:

“3A. ...
“This insurance also covers the legal liability of the Assured as stevedores (whether arising from negligence or otherwise) in respect of loss or damage which may occur to vessels which the assured may be loading and/or discharging ... and/or their apparel or equipment, their freight and cargoes and other interests on board ... resulting from or growing out of such loading and/or discharging and to pay all claims and charges in connection therewith....”
“8. This insurance includes all legal expenses and costs incurred in defending and/or investigating claims coming within the scope of this cover where such defense and/or investigation is made with the approval of the underwriters, subject at all times to the limit of liability expressed herein.
“9. It is hereby understood and agreed that this company shall not be liable for more than the following amounts (including legal expenses) in any one occurrence or any series of occurrences directly or indirectly resulting from the same cause, each pier separately insured.
“A. $250,000 if resulting from or arising out of the assured’s operations, work and duties as stevedores;
“10. It is hereby understood and agreed that the definition of ‘occurrence’ is to read:
‘one happening or series of happenings arising out of one event taking place during the term of the policy.’
“11. In all cases of claims or series of claims hereunder, no claim shall be paid unless it exceeds the sum of $10,000 (including legal expenses) and from each accident or occurrence hereunder the amount of $10,000 shall be deducted after deductions of all salvage and recovers.”

Plaintiff argues that the policy is ambiguous, and that ambiguities must be resolved against the defendant company. I readily agree that, to the extent the policy is actually ambiguous, the ambiguities should be resolved in favor of the assured and against the company; the difficulty is that an interpretation which seems to favor the assured in one set of circumstances would favor the company in other circumstances. That is, while treating each of the 95 claims as a separate occurrence would prejudice the assured by multiplying its deductible, it would advantage the assured by increasing the total amount of coverage provided.

Apparently, plaintiff would like a ruling that each claim is a separate occurrence for purposes of applying the $250,000 policy limit, but not for purposes of applying the $10,000 deductible. I reject that approach. Both the deductible provisions and the policy limits provisions use the word “occurrence,” and the policy contains a single definition of that term, obviously intended to apply to that term wherever it appears in the policy.

It must be admitted that the definition of “occurrence”, set forth in ¶ 10 of the policy, does not add appreciably to our understanding of its meaning (“one happening or series of happenings arising out of one event taking place during the term of the policy”). Webster’s Third New International Dictionary defines “event” as “something that happens,” and defines “happening” as “occurrence”. It is, however, reasonable to suppose that the “arising out of” language of ¶ 10 of the policy was intended to dovetail with the “resulting from the same cause” language of ¶ 9. The most reasonable construction of the entire policy, in my view, is that all damage (for which plaintiff might be legally liable) caused by the same act or omission which gave rise to legal liability, is the unit to which both the $250,000 maximum and the $10,000 deductible apply.

Thus, where an identifiable negligent act or omission on the part of the stevedore causes damage, the total liability of the insurer under this policy (including legal expenses) is limited to $250,000, and arises only with respect to damages in excess of $10,000.

In many, perhaps most, instances, a particular act or omission constituting negligence can be identified as the cause of the damage to the cargo. Where that is not feasible (e.g., unexplained loss or shrinkage occurring during unloading operations), it would be reasonable to regard the unloading of a particular vessel at a particular pier as the single “event” or “occurrence” for purposes of the limitations and deductible provisions of the policy.

In short, I have concluded that the claims presented in the New York litigation involve at least 23 separate units to which the limitations and deductibles provisions of the policy apply; and, depending upon the circumstances of each claim, as discussed above, perhaps as many as 95. Identifiably separate claims which, together with allocable legal expense, aggregate less than $10,000, are the responsibility of the plaintiff, not the defendants.

This does not mean, as defendants’ argument seems to assume, that because the total number of “occurrences,” multiplied by $10,000, exceeds the total sum for which recovery is now being sought against plaintiff, the defendants have no responsibility for payment. Many of the individual claims are for amounts greatly in excess of $10,000. The fact that all of these claims have been consolidated in a single third-party complaint in the New York litigation has no bearing upon the correct application of the policy provisions.

Although I am satisfied that the policy language quoted above, standing alone, rules out plaintiff’s suggestion that all stevedoring services performed pursuant to any one contract constitute a single event or occurrence, and supports the construction set forth above, I note that further support for the construction I have adopted resides in the provisions of II20 of the policy, relating to scrap iron cargoes. The policy provides:

“20. As respects scrap iron cargoes, loaded or discharged by use of electric magnets, the following conditions shall apply:
“A.....
“B. No claim shall be payable under this policy unless the aggregate liability of the Assured arising out of the loading and/or unloading of an individual vessel (on the arrival) exceeds the sum of $10,-000 and this sum shall be deducted from the amount of such claim.”

This provision does not, of course, directly apply in the present case, which involves the unloading of fruit from different vessels on 23 separate occasions. But this provision does tend to show at least two things pertinent to this litigation: (1) the parties did not regard any contract for longterm stevedoring services as a single event or occurrence; and (2) the parties recognized that, where discrete acts causing damage might be difficult to identify, the entire unloading of a single vessel would be the appropriate unit of measurement.

II. LEGAL EXPENSE

Determining the insurance company’s responsibility for the expenses associated with defending the New York action is less elearcut. As the defendants correctly note, the policy does not require the company to defend actions brought against the assured. On the other hand, the policy does require the company to indemnify the assured for “all legal expenses and costs incurred in defending and/or investigating claims ... where such defenses and/or investigation is made with the approval of the underwriters .....” And, while it is clear that the $250,000-per-occurrence limitation applies to the aggregate of damages and legal expenses, the policy provisions are somewhat less precise concerning the relationship between the $10,000-per-occur-rence deductible and legal expenses.

Paragraph 8 of the policy states that the insurance “includes all legal expenses and costs ...,” subject (only) to the $250,000 per-occurrence policy limit. On the other hand, ¶ 11 states that “no claim shall be paid unless it exceeds the sum of $10,000 (including legal expenses)” and that “from each accident or occurrence hereunder the amount of $10,000 shall be deducted — ”

At first blush, it would seem that the policy is ambiguous on this point, and that the ambiguity should be resolved against the insurance company. Policy language is ambiguous when it can reasonably be construed in either of two conflicting ways. C.H. Heist Caribe Corp. v. American Home Assurance Co., 640 F.2d 479 (3d Cir.1981). On the other hand, a reasonably clear, specific, policy provision should not be ignored merely because it arguably conflicts with one of two reasonable interpretations of other, more general, provisions of the policy. Upon close examination, I believe that is the situation presented here.

The difficulty arises from the policy’s lack of precision in employing the terms “claim” and “liability”. In some parts of the policy, “claim” obviously means a claim asserted by third parties against the assured (for example, the reference in paragraph 8 to “legal expenses and costs incurred in defending ... claims coming within the scope of this cover ... ”), but the references to “claim” in ¶ 11 can reasonably be interpreted only as referring to claims made by the assured against the insurance company (only a claim by the assured against the company could include legal expenses).

I therefore conclude that, with respect to any one “occurrence” (as discussed in the preceding section — i.e., the unit to which the $250,000 maximum coverage applies) the defendant’s obligation to pay the costs of investigation and/or defense arises only when, and to the extent that, such costs, when added to the amount of plaintiff’s liability to the third party, exceeds $10,000; and that, as to each such “occurrence,” the defendant’s maximum liability, including defense costs, may not exceed $250,000.

It should be noted, not only would the interpretation sought by plaintiff do violence to the plain meaning of 1111 of the policy, it would also lead to strange results, as a practical matter. When an occurrence results in damages of less than $10,000, the plaintiff has the greater interest in defense and settlement decisions, and should be permitted to exercise unfettered control over such matters. It would be most unreasonable to suppose that the parties contemplated that the insurer’s right to approve or disapprove defense expenditures would arise unless the damages were sufficiently large to suggest that the insurer might be called upon to make payment.

It must be conceded, however, that the correct application of the policy provisions to the unusual situation presented by the New York litigation is difficult. At least 23, and perhaps as many as 95, claims against plaintiff arising from as many separate “occurrences” have been joined in a single federal lawsuit. Many of these individual claims never posed any threat that total liability, including counsel fees, would reach the $10,000 threshold. As to them, the costs of investigation and litigation are the responsibility of plaintiff. On the other hand, many of the individual claims greatly exceeded the $10,000 threshold, and it is clear that the insurer does bear a substantial responsibility for defense costs, as well as indemnity, with respect to these claims.

Although it seems clear that an appropriate allocation of the litigation expenses among the various claims involved in the litigation will be necessary, the present record does not afford a basis for such allocation by this court. All that can be decided at this juncture is that the insurer does have responsibility for the cost of investigating claims and the allocable portion of litigation expenses attributable to such claims, when the aggregate of claims and expenses exceeds $10,000, up to a maximum of $250,000.

III. COUNSEL FEES AND EXPENSES OF THIS ACTION

When an insurance company wrongfully refuses to provide a defense to its insured, and the latter successfully prosecutes a declaratory judgment action resolving the issue, the insurance company may (and perhaps must) be required to pay the insured’s counsel fees and expenses in the declaratory judgment litigation. Montgomery Ward & Co., Inc. v. Pacific Indemnity Co., 557 F.2d 51 (3d Cir.1977); Kelmo Enterprises v. Commercial Union Ins. Co., 285 Pa.Super. 13, 426 A.2d 680 (1981). In the present case, plaintiff has not succeeded in establishing that the defendants owed a duty of providing a defense, but merely that the defendants have the obligation of reimbursing plaintiff for some portion of its litigation expenses, not yet determinable. Moreover, on the coverage, deductible, and limitations issues, the result in this case is more favorable to the defendants than to the plaintiff. In these circumstances, an award of counsel fees and expenses would be inappropriate.

As noted earlier, plaintiff is also pursuing an action for contractual indemnity against the City of Wilmington. The merits of that claim are not before me, but plaintiff seeks a present ruling as to counsel fees and expenses incurred in that suit. In my view, that litigation is not within the policy coverage of defense costs, but is governed by ordinary principles of subrogation. To the extent the result may benefit the insurer, an appropriate deduction for counsel fees would be in order; but no present obligation of the defendants has been established.

ORDER

AND NOW, this 14th day of January, 1985, upon consideration of the motion of plaintiff, Northern Shipping Company, for partial summary judgment, the response thereto, and after hearing thereon, it is

ORDERED, ADJUDGED AND DECLARED, that:

1. Under the terms of the insurance policies in suit, all losses sustained as a result of the same act or omission constituting negligence constitute a single occurrence, happening, or event, for purposes of applying the $250,000 coverage limitation and the $10,000 deductible. Where it is not feasible to identify a single operative cause of the loss or losses, the operation of unloading a particular vessel at a particular pier should be treated as constituting a single occurrence, happening, or event, for those purposes.

2. Under the terms of the insurance policies in suit, the insurer’s obligation to pay legal expenses and costs of investigating and/or defense of claims asserted against the assured arises only when, and to the extent that, the aggregate of such claims and associated investigative/defense expenses exceeds $10,000 and does not exceed $250,000.

3. Where more than one claim, arising from separate occurrences, are asserted against the assured in a single lawsuit, and not all of such individual claims reach the $10,000 threshold, the insurer’s obligation to pay investigative/defense expenses is to be determined by an appropriate allocation thereof among the claims asserted.

4. In all other respects, plaintiff’s Motion for Partial Summary Judgment is DENIED.

5. Inasmuch as the foregoing rulings dispose of all of the issues involved in this case, this Order shall be deemed to constitute the final judgment in this case.

6. Plaintiffs application for counsel fees is DENIED. Each party to bear its own costs.

      . There are actually two policies, each covering a portion of the time period involved. Since the pertinent language of the policies is identical, it is unnecessary to distinguish between the two policies; references in this Opinion to "the policy” apply equally to both policies.

        . Precisely how this consolidation occurred is not disclosed in the present record. For present purposes, however, the consolidation into a single federal lawsuit must be accepted as an accomplished fact. Whether the jurisdiction of the federal court in New York might be subject to challenge (particularly if, as seems probable, it was predicated upon diversity of citizenship), is not an appropriate subject of this court’s inquiry.