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Aetna Casualty and Surety Co. v. Kerr-Mcgee Chemical Corp.

decided: May 5, 1989.


Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 88 C 2826 -- Charles P. Kocoras, Judge.

Cudahy, Easterbrook and Ripple, Circuit Judges.

Author: Cudahy

CUDAHY, Circuit Judge

Plaintiff Aetna Casualty and Surety Company ("Aetna"), appeals the district court's dismissal of its declaratory judgment action against the defendants, Kerr-McGee Chemical Corporation, Kerr-McGee Refining Corporation and American Potash and Chemical Corporation. We affirm.


The defendants are either wholly owned subsidiaries or predecessors in interest of Kerr-McGee Corporation ("Kerr-McGee"). Since the mid-1960's, Kerr-McGee has been involved, either on its own behalf or through its subsidiaries, in manufacturing, processing and refining activities which have resulted in the production of significant amounts of allegedly hazardous waste materials. In connection with the production and disposal of these wastes, Kerr-McGee has been sued by individuals and government entities for bodily injury and property damage, and by the United States for cleanup costs under the Superfund law. In addition, various state and federal regulatory agencies, including the Environmental Protection Agency and the Nuclear Regulatory Commission, are currently conducting investigations of Kerr-McGee's production, handling and disposal of the waste materials it generated.

Much of the litigation and regulatory activity involves the operation, by American Potash and Kerr-McGee Chemical, of a facility in West Chicago, Illinois, which processed radioactive materials. However, Illinois is not the only center of activity. The Superfund litigation is currently pending in Oklahoma, and involves Kerr-McGee Refining's alleged dumping of hazardous wastes at a site located near Criner, Oklahoma. Kerr-McGee Chemical is also the defendant in three suits in California, brought by former Kerr-McGee Chemical employees and their families, or residents living near Kerr-McGee Chemical facilities, which allege bodily injury and property damage arising out of exposure to hazardous or toxic chemicals.

Over the past twenty-five years, Kerr-McGee purchased comprehensive general and excess liability insurance policies from a variety of insurance carriers, including Aetna, which provided coverage to the parent and its subsidiaries for specified bodily injury and property damage claims. American Potash, which operated the West Chicago facility prior to the corporation's purchase by Kerr-McGee, also had primary and excess liability policies with Aetna and others. On October 27, 1987, Kerr-McGee sued twelve insurance companies on behalf of itself, its subsidiaries and American Potash in Oklahoma state court. Kerr-McGee alleged that the defendant insurers had breached their contracts with Kerr-McGee or its subsidiaries by refusing to indemnity Kerr-McGee or its subsidiaries for the liability they had incurred, and by refusing to defend the pending judicial and administrative actions. Kerr-McGee prayed for money damages for its defense and liability costs to date, as well as a declaration that the insurers had an obligation to defend and indemnity parent and subsidiaries in the future.*fn1

Aetna attempted to remove the Oklahoma action to federal court. Although there was not complete diversity of citizenship between Kerr-McGee and all defendants, Aetna argued that its controversy with Kerr-McGee was "separate and independent" from Kerr-McGee's dispute with the other insurers, and therefore, under 28 U.S.C. section 1441(c), removal was proper despite the lack of complete diversity. The Oklahoma district court rejected this argument, and remanded the case to state court.

[Plaintiff's] complaint is that it did not receive what it paid for . . ., namely, a package of protection out of many policies that overlap and interlock temporally. . . . The overlap in this case is like that of the shingles on a roof or the scales of a fish. The policies have relationships with the ones ahead, behind, and (as to primary and excess coverage) above and below. Plaintiff . . . bottoms its case on the total impact of the collective conduct of defendants. . . . [Each] defendant's liability, if plaintiff proves its case, is but a facet, and not "independent".

Kerr-McGee Corp. v. Aetna Casualty & Sur. Co., Nos. CIV 87-2378-A, -2380-A, -2355-A & -2364-A, mem. op. at 3-4 (WD. Okla. Feb. 22, 1988) (emphasis added).

Aetna subsequently filed a motion to dismiss the Oklahoma state court action, alleging, among other grounds, that Kerr-McGee, the parent, was not the real party in interest, and could not sue "on behalf of" its subsidiaries for injuries which they had suffered. This motion was denied.

Having failed to extricate itself from the the Oklahoma state-court litigation, Aetna filed its declaratory judgment complaint in the district court on April 1, 1988. The complaint does not name Kerr-McGee (the parent company and sole plaintiff in Oklahoma) as a defendant. Instead, the complaint names as defendants only Kerr-McGee Chemical, Kerr-McGee Refining and American Potash. Aetna seeks a declaration that it is not liable to the defendants for any financial loss they may suffer due to the judicial and administrative proceedings discussed above. Although the parties involved in the Oklahoma and Illinois actions are not identical, the district court dismissed Aetna's complaint, finding that there was "another action pending between the same parties for the same cause" and that "[the] [questions] which Aetna seeks to have resolved here ...

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