Case Title: State v. CNA Insurance Companies

Citation: 

Docket Number: 

State: vermont

Court: Vermont Supreme Court

Date: 2001-07-20T00:00:00Z

Document:
State v. CNA Insurance Companies  State v. CNA Insurance Companies (99-276); 172 Vt. 318; 779 A.2d 662[Filed 20-Jul-2001] NOTICE: This opinion is subject to motions for reargument under V.R.A.P. 40 as well as formal revision before publication in the Vermont Reports. Readers are requested to notify the Reporter of Decisions, Vermont Supreme Court, 109 State Street, Montpelier, Vermont 05609-0801 of any errors in order that corrections may be made before this opinion goes to press. No. 99-276State of Vermont Supreme Court On Appeal from v. Washington Superior CourtCNA Insurance Companies,June Term, 2000 Continental Insurance Company and Glens Falls Insurance CompanyMatthew I. Katz, J.William H. Sorrell, Attorney General, and William E. Griffin, Chief Assistant Attorney General, Montpelier, for Plaintiff-Appellant.James E. Preston of Pierson Wadhams Quinn & Yates, Kevin J. Coyle of McNeil Leddy & Sheahan, Burlington, and Robert M. Kaplan of Robson Ferber Frost Chan & Essner, LLP, New York, New York, for Defendants-Appellees.PRESENT: Dooley, Morse, and Johnson, JJ., and Toor, Supr. J., and Gibson, J. (Ret.), Specially Assigned JOHNSON, J. Plaintiff State of Vermont appeals and defendants CNA Insurance, Continental Insurance and Glens Falls Insurance cross-appeal from an order of the superior court granting in part and denying in part the parties' motions for summary judgment. The State initiated a declaratory judgment action to determine insurance coverage for potential liability arising from the contamination of the state prison site in Windsor. The trial court held that there was coverage for a civil suit, but no coverage for a state administrative proceeding. We affirm in part, reverse in part and remand for further proceedings. The State of Vermont operated a state prison on a parcel of land that it owned in the town of Windsor until 1971. Between 1954 and 1958 the state Department of Corrections (DOC) operated a wood treatment facility on the property. Treatment of the wood involved the use of kerosene and pentachlorophenol by state prisoners. In 1976, DOC conveyed part of the property, including the portion on which the wood treatment facility was located, to the Windsor School District. In 1995, the district filed a complaint with the Vermont Agency of Natural Resources (ANR), asking that the agency hold DOC responsible for environmental contamination at the site of the former Windsor Prison. At the same time, the district submitted a complaint directly with DOC asking that the department share the costs of testing the site and any clean-up costs. Subsequently, the district filed a civil action in federal district court against DOC, alleging that it had released hazardous substances from its wood treatment facility to the soil and groundwater; the district sought an order requiring the department to rehabilitate the site. This suit was later dismissed without prejudice. The district also filed a civil action against DOC in Washington Superior Court alleging substantially the same claims as in the federal action. During this period, ANR proceeded against DOC, in part directing DOC to retain a consultant to investigate the extent of contamination and possible methods of remediation. The State of Vermont purchased comprehensive general liability (CGL) insurance from the Glens Falls Insurance Company. Glens Falls is now owned by Continental Insurance Company and both are CNA affiliated companies. Policies were written for three-year periods for at least most of the years 1963 to 1990. The parties dispute whether there was a policy for the period 1969-1972. The policies bound the insurer to pay "all sums which the insured shall become legally obligated to pay as damages because of . . . property damage to which this insurance applies, caused by an occurrence, and the [insurer] shall have the right and duty to defend any suit against the insured seeking damages on account of such . . . property damage" (quoting from policy 1981-1984). Starting in 1984, the policies included a pollution exclusion, and the State represents that it has not claimed coverage for any period after 1984. The State brought a declaratory judgment action to determine defendants' obligation to defend and indemnify the State in both the civil action in Washington Superior Court and the ANR proceedings. Both sides moved for summary judgment. The trial court awarded partial summary judgment to the State on the "issues of coverage" raised by the district's civil suit, and awarded partial summary judgment to defendants on the "issue of indemnity for expenses arising out of the administrative [ANR] proceedings." The court found that because ANR is part of the same branch of government as the agency under investigation, both of which are ultimately responsible to the governor, the proceedings are the equivalent of the same entity suing itself. The State appeals, arguing that defendants are obligated to defend and indemnify the State in the ANR proceeding because the proceeding is a suit and DOC would be legally obligated to pay any damages assessed by ANR. Defendants cross-appeal claiming there is no coverage for the civil suit because the contamination is not an "occurrence" under the policy, and that there was no proof of property damage during the policy periods. Defendants also raise a number of issues that challenge the extent of their liability for either proceeding. Defendants point to a pollution exclusion clause in the 1981 policy and "owned" and "alienated" clauses in the 1981 and 1963 policies, which they believe limits coverage for the contamination on the prison site. Finally, defendants raise the issues of whether CNA and Continental are proper defendants, and whether the trial court's disposition was final for the purpose of review on appeal. I.Jurisdiction Defendants argue that because the trial court failed to address a number of the issues they raised on summary judgment, the court's judgment is not final and thus not ripe for appeal. It is elementary that "a final judgment is a prerequisite to appellate jurisdiction." Hospitality Inns v. South Burlington R.I., 149 Vt. 653, 656, 547 A.2d 1355 , 1358 (1988). "'The test of whether a decree or judgment is final is whether it makes a final disposition of the subject matter before the court.'" Morissette v. Morissette, 143 Vt. 52, 58, 463 A.2d 1384 , 1388 (1983) (quoting Woodard v. Porter Hospital, Inc., 125 Vt. 264, 265, 214 A.2d 67 , 69 (1965)). We require "that the decree or judgment disposed of all matters that should or could properly be settled at the time and in the proceeding then before the court." In re Estate of Webster, 117 Vt. 550, 552, 96 A.2d 816 , 817 (1953). As in this case, where multiple claims are involved, any decision that "adjudicates fewer than all the claims or the rights and liabilities of fewer than all the parties shall not terminate the action." V.R.C.P. 54(b). From its order, it is clear that the court intended its ruling to be final. At the conclusion of the court's order, the court stated, "Should either party require a more formal declaratory judgment, it may submit one within ten days. Barring such submission, the foregoing shall constitute the judgment of the court." Here, defendants contend that the court's judgment, in fact, is not final because the court did not address each claim that defendants raised to limit their liability under the policy. We agree with defendants that the court failed to address several issues that needed to be addressed, see infra part IV. The trial court's resolution of the case did not render these issues irrelevant or superfluous. Because the court decided that defendants are liable for coverage for the civil proceeding, it should have addressed all the claims that purport to limit defendants' liability for that coverage. The court left several claims undecided, and thus the legal rights and liabilities of each party were not resolved conclusively. (FN1) We must conclude, therefore, that the court's order is not a final judgment, and a proper appeal lies only pursuant to V.R.A.P. 5. Huddleston v. Univ. of Vt., 168 Vt. 249, 251, 719 A.2d 415 , 417 (1998). None of the procedures for perfecting an interlocutory appeal was followed in this case. See V.R.A.P. 5. According to V.R.A.P. 2, however, we have discretion to suspend "application of Rule 5 where dismissal would most likely result in another appeal after remand, the merits of the question of law were fully briefed and argued, and the Court has expended valuable time on the case." In re Smith, 169 Vt. 162, 167, 730 A.2d 605 , 609 (1999). Given that these requirements have been met in this case, we may entertain this appeal under V.R.A.P. 2. Further, because ultimately we reverse the court on several issues, the interests of judicial economy compel us to rule on those claims that the court did reach. Therefore, consistent with the court's explicit intent, we will treat the court's ruling as one for partial summary judgment under V.R.C.P. 54(b). See In re E.W., 169 Vt. 542, 543, 726 A.2d 58 , 60 (1999) (mem.). II. ANR Proceeding Defendants contend that the ANR administrative proceeding is not a suit and therefore is not covered by the policy. The court agreed that the policy did not contemplate paying for sums arising out of an administrative proceeding as opposed to a more traditional legal judgment. As noted above, defendants have a "duty to defend any suit against the insured seeking damages." The policies do not, however, define "suit." At issue, then, is whether the ANR proceeding is a "suit" for the purposes of the policy. In construing an insurance policy, disputed terms should be read according to their plain, ordinary and popular meaning. American Protection Ins. Co. v. McMahan, 151 Vt. 520, 522, 562 A.2d 462, 464 (1989). Because a policy is prepared by the insurer, all ambiguities must be resolved in favor of the insured. Peerless Ins. Co. v. Wells, 154 Vt. 491, 494, 580 A.2d 485, 487 (1990). Further, the burden is on the insurer to show that a third party's claim against the insured is entirely excluded from coverage. Village of Morrisville Water & Light Dep't v. United States Fid. & Guar. Co., 775 F. Supp 718, 725 (D. Vt. 1991). In 1995, ANR directed DOC to undertake investigative work at the prison site intended to define the degree and extent of contamination, determine the risk posed to the public, and evaluate methods of any corrective action. This action took the form of letters from the Commissioner of the Department of Environmental Conservation to the Commissioner of DOC. Based on the result of this investigation, ANR also required responsible parties to undertake a clean-up of the site, including excavation of the most contaminated soils. In response to these proceedings, DOC hired private firms to facilitate and execute the remediation plan. Although these steps are not a "suit" in the traditional sense, they are sufficiently adversarial in nature to constitute a "suit" in a broader interpretation. Our interpretation is consistent with other courts that have addressed similar issues, particularly in actions brought by the Environmental Protection Agency (EPA). See Governmental Interinsurance Exch. v. City of Angola, 8 F. Supp. 2d 1120 , 1130 (N.D. Ind. 1998) ("The vast majority of courts around the United States . . . have found that all kinds of coercive administrative actions are 'suits' covered by general liability insurance policies.") (internal quotations and citations omitted); Vermont Gas Sys. v. United States Fid. & Guar. Co., 805 F. Supp. 227 , 232 (D. Vt. 1992) (EPA special notice letter triggers duty to defend); Village of Morrisville, 775 F. Supp. at 733 (EPA notification that town was a potentially responsible party for contamination is suit under CGL policy). We see no reason to treat compliance with a state environmental regime differently from a federal one. Instead, we look to whether the official action is "sufficiently coercive and adversarial in nature." Village of Morrisville, 775 F. Supp. at 733. The record indicates that the clean-up undertaken by DOC of the site was in response to the coercive adversarial nature of ANR's requests. These proceedings should therefore be treated as a "suit" by the CGL policy. The letters sent by ANR to DOC were motivated not by any discretionary desire to intervene, but rather mandated by the legislative scheme for managing hazardous waste. The legislature has vested authority to enforce the hazardous waste statutes in the secretary of ANR. See, e.g., 10 V.S.A. § 8003(a)(12) (secretary of ANR may enforce Vermont statutes "relating to solid waste, hazardous waste and hazardous materials"); id. § 6604 ("the secretary shall publish and adopt . . . a solid waste management plan"); id. § 6604a ("[t]he secretary . . . shall develop a plan for the receipt, treatment and disposal . . . of soils contaminated"); id. § 6610a(a) (detailing powers of secretary to enforce waste management statutes). The legislature has also broadly defined the scope of hazardous waste liability. Section 6615 provides in part: [A]ny person who at the time of release or threatened release of any hazardous material owned or operated any facility at which such hazardous materials were disposed of . . . shall be liable for abating such release or threatened release, and costs of investigation, removal and remedial actions incurred by the state which are necessary to protect public health or the environment. Id. § 6615 (a)(2),(4)(A), (B). The legislature was explicit that this liability was intended to be enforced against state agencies. Id. § 6602(6) (defining person as including "the state of Vermont or any agency, department or subdivision of the state"). Because ANR is the agency entrusted with enforcing the hazardous waste statutes and the statutes specifically apply to state agencies, including DOC, the statutory scheme must have contemplated an action by ANR against another department like DOC. Therefore, DOC's liability for any cost of investigation or clean-up as required by statute would be damages covered by the policy. Defendants argued and the trial court held that any "damages" resulting from the ANR proceedings against DOC would not be covered by the policy because both entities are agencies in the executive branch whose commissioners serve at the pleasure of the governor. Under these circumstances, the court held, any judgment by one agency against another would be the result of an action that was essentially controlled by the same person. The court feared that aspects of the case such as the zealousness of the defense or the prosecution, the forms of relief requested, and any decision to appeal could be tainted by the unified interest of the executive. Therefore, the court denied insurance coverage for the proceeding. The trial court based its conclusion on one case for the proposition that the "same person cannot be both plaintiff and defendant at the same time in the same action." Globe & Rutgers Fire Ins. Co. v. Hines, 273 F. 774, 777 (2nd Cir. 1921). We find this authority unpersuasive and contrary to the modern trend. Allowing one agency to proceed against another is neither unprecedented nor unusual. The United States Supreme Court addressed the issue of whether the government could sue itself in United States v. Interstate Commerce Comm'n, 337 U.S. 426 (1949). In that case, in which the United States was suing the I.C.C. to abate wharfage charges, the Court held that "courts must look beyond the names that symbolize the parties to determine whether a justiciable case or controversy is presented." Id. at 430; see also United States v. Nixon, 418 U.S. 683 , 697 (1974) (dispute between special prosecutor and president presents traditionally justiciable issue). More recently, the Court has held that the EEOC has the authority to require federal agencies to pay compensatory damages in employment discrimination cases. West v. Gibson, 527 U.S. 212 , 217 (1999). Similar to our analysis here, the Court read the statutory language at issue (Title VII) as an explicit grant of authority to the agency to levy damage awards upon other federal agencies. Id.; see also Tennessee Valley Authority v. United States, 13 Cl. Ct. 692, 697 (1987) ("The mere assertion of a claim of intrabranch dispute, without more, has never operated to defeat . . . jurisdiction.") (internal quotations and citations omitted). The intra branch dispute between ANR and DOC does not violate any notion of separation of powers or transform the proceeding into a collusive first-party claim. Rather, ANR is proceeding against DOC in a traditionally justiciable controversy just as the agency would have against a private party. There is no evidence that the governor has any intent to interfere in these proceedings to alter the behavior of either agency. The steps taken by the secretary of ANR against DOC were not taken at the direction of the governor, but instead imposed by a statutory duty. Likewise, DOC's response is not controlled by the governor but instead by a legislative scheme that renders state agencies