Eastern Associated Coal Corp. v. Aetna Casualty & Surety Co.

Eastern Associated Coal Corporation (Eastern) (plaintiff) retained a broker to choose a suitable form of business-interruption insurance, draft a policy, and select a qualified insurer. The broker selected Aetna Casualty & Surety Company (Aetna) (defendant). The policy’s lost-profits clause provided that, in the event of a work stoppage, Aetna would provide compensation under a formula that measured Eastern’s lost earnings, less the unincurred expense of any production suspended as a result of the stoppage. The policy’s loss-reduction clause obligated Aetna to indemnify Eastern for expenses incurred to reduce a loss covered by the policy. When fire forced Eastern to close its coal mine, Aetna paid up in accordance with the lost-profits clause. However, Aetna refused reimbursement for the expensive substitute coal Eastern had to buy to keep its customers supplied. Eastern sued Aetna in federal court. Pennsylvania law governed the diversity case. Eastern argued that it was entitled to reimbursement because purchasing the substitute coal was (1) a new expense created by the mine’s closure and (2) an expense incurred to reduce loss. Eastern contended that ambiguous language in the Aetna policy supported both arguments and that the court should interpret those ambiguities in Eastern’s favor. The jury found in Eastern’s favor, and the judge denied Aetna’s motion for a judgment notwithstanding the verdict. Aetna appealed to the Third Circuit.