Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_11-cv-01007/USCOURTS-azd-2_11-cv-01007-0/pdf.json

Nature of Suit Code: 110
Nature of Suit: Insurance
Cause of Action: 28:1332 Diversity-Declaratory Judgment

---

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

WO 

IN THE UNITED STATES DISTRICT COURT 

FOR THE DISTRICT OF ARIZONA 

Nammo Talley Inc., 

Plaintiff, 

v. 

Allstate Ins. Co., et al., 

Defendants.

No. CV-11-01007-PHX-SMM

ORDER 

 Before the Court are six motions for summary judgment. Both Plaintiff Nammo 

Talley, Inc. (“Talley”) and Defendant Allstate Insurance Company, solely as successorin-interest to Northbrook Excess and Surplus Insurance Company, formerly known as 

Northbrook Insurance Company, (“Allstate”) filed motions for summary judgment 

regarding the pollution exclusion (Docs. 131; 194), various notice and property damage 

issues (Docs. 190; 193), and allocation (Docs. 165; 167). All motions are fully briefed. 

The Court will grant Allstate’s motion regarding the pollution exclusion, deny Talley’s 

corresponding cross motion, grant the parties’ requests for oral argument regarding the 

remaining motions regarding notice and property damage issues, and hold the remaining 

motions for summary judgment in abeyance. 

FACTS 

 Talley1

 is a defense contractor that has manufactured rocket motors, rocket 

propellant, and weapons at its manufacturing facility in Mesa, Arizona, (“the Site”) since 

 

1

 The following facts are undisputed, unless indicated otherwise. 

Case 2:11-cv-01007-SMM Document 200 Filed 03/31/15 Page 1 of 12
- 2 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

the early 1960’s. (Doc. 1 at 15.) Allstate, as a successor-in-interest, issued two successive 

umbrella policies (“the Policies”) to Talley between 1975 and 1978. Policy 63-300-019 

was issued for the period January 1, 1975, to January 1978; it was canceled effective 

January 1, 1977. (Doc. 131-4 at 88.) Policy 63-002-569 was in effect from January 1, 

1977, to January 1, 1978. (Id. at 108.) Both policies contain virtually identical qualified 

pollution exclusions reading, in relevant part: 

This policy shall not apply: 

to personal Injury or Property Damage arising out of the discharge, 

dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, 

toxic chemicals, liquids or gases, waste materials or other irritants, 

contaminants or pollutants into or upon land, the atmosphere or any water 

course or body of water; but this exclusion does not apply if such discharge, 

dispersal, release or escape is sudden and accidental. 

(Doc. 131-4 at 98, 113-114)(emphasis added). 

 On October 1, 1990, the State of Arizona filed a civil complaint against Talley 

alleging “groundwater, surface water, and soil contamination” at the Site and neighboring 

properties. (Doc. 1 at 17.) The State’s claims arose out of Talley’s historic manufacturing 

operations at two areas at the Site: the water bore-out area (“WBO”) and the thermal 

treatment unit (“TTU”). (Doc. 1 at 24.). 

 The WBO operation, active from the 1960’s until 1990, involved using a highpressure water system to remove solid propellant containing ammonium perchlorate from 

rocket motors.(Docs 1 at 27; 131-1 at 12.) Talley attempted to collect removed propellant 

through primary and secondary pollutant recovery techniques and then discharged the 

water used in the operation to unlined evaporative ponds. (Doc. 1 at 28.) At some point, 

perchlorate leached from the ponds into the local aquifer and resulted in perchlorate 

contamination of neighboring wells and property offsite. (Doc. 1 at 17, 29.) 

 At the TTU, active from 1966 to 2006, Talley conducted open burning of waste 

propellant containing perchlorate along with other materials in unlined burn pits. (Doc. 1 

at 30.) During the majority of the TTU’s operation, Talley employees dumped the waste 

Case 2:11-cv-01007-SMM Document 200 Filed 03/31/15 Page 2 of 12
- 3 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

on bare ground. (Doc. 1 at 33-34.) The dumped waste would then be ignited and allowed 

to burn. (Docs. 131-1 at 32; 134 at 32.) Though these activities were performed pursuant 

to state permits, the TTU operations contaminated surrounding sites and water. 

 On August 30, 1991, Talley entered into a consent judgment to settle all claims 

brought by the State. (Doc. 193-5 at 29.) As part of the judgment, Talley admitted that it 

violated Arizona Administrative Code § § R18-8-260, et seq., promulgated pursuant to 

the Hazardous Waste Management Act, A.R.S. §§ 49-901 et seq. (Id at 28-29). Talley 

agreed to pay a $500,000 civil penalty and to investigate and remediate toxic 

contamination at the TTU and WBO. (Id. at 35-45.) 

 Talley initiated the present action after a number of its insurance providers refused 

to cover the costs associated with Talley’s investigation and remediation responsibilities. 

(Doc. 1.) All other insurers have reached settlement with Talley; Allstate, the lone excess 

insurer included in the suit, is the last remaining defendant. 

STANDARD OF REVIEW 

 A court must grant summary judgment if the pleadings and supporting documents, 

viewed in the light most favorable to the nonmoving party, “show that there is no genuine 

issue as to any material fact and that the moving party is entitled to judgment as a matter 

of law.” Fed. R. Civ. P. 56(c); see Celotex Corp. v. Catrett, 477 U.S. 317, 322-23 (1986); 

Jesinger v. Nevada Fed. Credit Union, 24 F.3d 1127, 1130 (9th Cir. 1994). Substantive 

law determines which facts are material. See Anderson v. Liberty Lobby, 477 U.S. 242, 

248 (1986); see also Jesinger, 24 F.3d at 1130. “Only disputes over facts that might 

affect the outcome of the suit under the governing law will properly preclude the entry of 

summary judgment.” Anderson, 477 U.S. at 248. The dispute must also be genuine, that 

is, the evidence must be “such that a reasonable jury could return a verdict for the 

nonmoving party.” Id.; see Jesinger, 24 F.3d at 1130.

 A principal purpose of summary judgment is “to isolate and dispose of factually 

unsupported claims.” Celotex, 477 U.S. at 323-24. Summary judgment is appropriate 

Case 2:11-cv-01007-SMM Document 200 Filed 03/31/15 Page 3 of 12
- 4 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

against a party who “fails to make a showing sufficient to establish the existence of an 

element essential to that party’s case, and on which that party will bear the burden of 

proof at trial.” Id. at 322; see also Citadel Holding Corp. v. Roven, 26 F.3d 960, 964 (9th 

Cir. 1994). The moving party need not disprove matters on which the opponent has the 

burden of proof at trial. See Celotex, 477 U.S. at 323-24. The party opposing summary 

judgment need not produce evidence “in a form that would be admissible at trial in order 

to avoid summary judgment.” Id. at 324. However, the nonmovant “may not rest upon 

the mere allegations or denials of [the party’s] pleadings, but . . . must set forth specific 

facts showing that there is a genuine issue for trial.” Fed. R. Civ. P. 56(e); see Matsushita 

Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 585-88 (1986); Brinson v. 

Linda Rose Joint Venture, 53 F.3d 1044, 1049 (9th Cir. 1995). 

DISCUSSION 

 Allstate seeks summary judgment on Count I (declaratory judgment) and Count II 

(breach of contract) on the basis that coverage for Plaintiff’s claims is barred by the 

pollution exclusion contained in Allstate Policy Nos. 63-300-109 and 63-002-569. (Doc. 

131.) Nammo refutes this claim, and has filed a cross motion for partial summary 

judgment seeking a determination that the pollution exclusion does not bar coverage. 

(Doc. 194.) The Court will address the parties’ motions in turn. 

a. Allstate’s Motion for Summary Judgment 

 Allstate claims that the Policies’ pollution exclusion bars coverage because Talley 

does not identify any specific instance of a “sudden” discharge, as interpreted by Smith v. 

Hughes Aircraft Co., 22 F.3d 1432 (1993). (Doc. 131 at 11-12.) Allstate also argues that, 

even if the Court interpreted “sudden” as having no temporal meaning, the exclusion 

would still bar coverage because Talley’s polluting activities were intentional. (Doc. 131 

at 12-16.) In response, Talley argues that “discharge,” as used in the qualified pollution 

exclusion context, is the migration of toxic pollutants into the environment and that the 

discharge at issue was not “sudden” because Talley did not expect or intend toxic 

Case 2:11-cv-01007-SMM Document 200 Filed 03/31/15 Page 4 of 12
- 5 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

migration. (Doc. 196 at 13-20.) Talley also argues that Hughes misapplied Arizona law, 

and that the Court should find that the “sudden and accidental” clause does not have a 

temporal element because the pollution exclusion’s drafting history allegedly proves the 

clause was adopted as a mere “clarification” of the “occurrence” definition. (Doc. 196 at 

4-11.) 

 As a threshold matter, the Court agrees with Allstate and finds that Talley has not 

identified any “sudden,” as interpreted by Hughes, discharge that resulted in 

contamination. Hughes holds that under Arizona law “the definition of ‘sudden’ 

incorporates a notion of temporal brevity....” Hughes, 22 F.3d at 1437. Talley makes no 

factual assertion that contamination resulted from anything but its routine waste-disposal 

practices that spanned over multiple decades. (Docs. 195 at 10-13, 22-25; 134 at ¶¶ 4, 26, 

38). Indeed, Talley’s only argument is that Talley did not “expect or intend” 

contamination over that time. (Doc. 196 at 13-20.) Further, it is undisputed that both the 

waste disposal and the toxic migration were products of Talley’s routine, continuous 

practices. (Id.) Therefore, Talley has failed to offer sufficient evidence to satisfy the 

pollution exclusion, as interpreted by Hughes. 

 Clearly, then, Hughes’s precedential value is the keystone issue to this action. In 

Hughes, the Ninth Circuit held that the “sudden and accidental” pollution exclusion 

barred coverage for groundwater contamination caused by the insured’s long-term 

practice of discharging waste solvents into unlined ponds.2

 The Circuit confirmed that 

“the definition of ‘sudden’ incorporates a notion of temporal brevity and does not merely 

mean expected....” Hughes, 22 F.3d at 1437. In reaching its holding, the Ninth Circuit 

found that, pursuant to State Farm Mut. Auto. Ins. Co. v. Wilson, 162 Ariz. 251, 782 P.2d 

727 (1989), the district court had properly 

(1) looked to the language of the exclusion and concluded that “sudden” 

“unmistakably connotes a temporal quality” (otherwise, it would simply be a 

synonym for “accidental”); (2) concluded that requiring temporal brevity furthered 

2

 The pollution exclusion in Hughes is materially similar to the pollution exclusion at issue here. See Hughes, 783 F.Supp. 1222, 1230 (1991). 

Case 2:11-cv-01007-SMM Document 200 Filed 03/31/15 Page 5 of 12
- 6 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

public policy by excluding deliberate indifference on the part of a polluting insured; and (3) analyzed the purpose of the transaction and, noting that Hughes is not an unsophisticated consumer, concluded that “an interpretation of ‘sudden’ that fails to recognize its temporal quality” would frustrate the parties' intent by forcing the Insurers to buy into the risk of insuring a pollution prone operation. Id. 

 The Circuit also acknowledged the argument that the pollution exclusion was 

drafted as a “clarification” of the “occurrence” definition. Id. However, the Circuit held 

that the “drafting and marketing history of the pollution exclusion is not only unclear but 

also irrelevant because [the insured] has not shown that it relied on this history or that the 

history played a part in the policy negotiations.” Id. 

 Arizona having never addressed the interpretation of “sudden and accidental” 

prior to—or in the 22 years since—the Ninth Circuit’s decision, Hughes reflects this 

Circuit’s attempt to predict how Arizona courts would interpret the term in cases 

involving the qualified pollution exclusion. See Aetna Cas. & Sur. Co. v. Sheft, 989 F.2d 

1105, 1108 (9th Cir. 1993) (“When a decision turns on applicable state law and the state's 

highest court has not adjudicated the issue, a federal court must make a reasonable 

determination of the result the highest state court would reach if it were deciding the 

case.”) Accordingly, Hughes remains binding in the Ninth Circuit “in the absence of any 

subsequent indication from the [Arizona] courts that [the] interpretation was incorrect.” 

Owen v. United States, 713 F.2d 1461, 1464 (9th Cir.1983). Simply said, “[s]tare decisis 

requires that [this Court] follow [the Circuit’s] earlier determination as to the law of a 

state in the absence of any subsequent change in the state law.” Newell v. Harold Shaffer 

Leasing Co., 489 F.2d 103, 107 (5th Cir. 1974) (cited by Owen, 713 F.2d at 1464). 

 Allstate argues that Hughes remains binding on this Court because no Arizona 

court has suggested that the decision is incorrect. (Doc. 131 at 11.) Talley argues that the 

court should disregard Hughes because two subsequent Arizona cases—Taylor v. State 

Farm Mut. Auto. Ins. Co., 175 Ariz. 148, 854 P.2d 1134 (1993) and Ohio Cas. Ins. Co. v. 

Henderson, 189 Ariz. 184, 939 P.2d 1337 (1997)—indicate that Hughes does not reflect 

Arizona law regarding the interpretation of insurance contracts. (Docs. 195 at 15; 196 at 

5-6, 8). The Court agrees with Allstate. 

Case 2:11-cv-01007-SMM Document 200 Filed 03/31/15 Page 6 of 12
- 7 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 The Court finds that neither case referenced by Talley gives “indication” or 

represents a “change in state law” suggesting that Hughes should be vacated. When it 

comes to using extrinsic evidence to determine a party’s intent, a Court may use its sound 

discretion to consider or deny extrinsic evidence. In Taylor, the Arizona Supreme Court 

clarified that it is improper for a judge to use his or her own understanding to determine 

whether a contractual term is ambiguous. Taylor,175 Ariz. 154, 854 P.2d 1140. The 

Taylor court emphasized that, where appropriate, a judge should consider parol evidence 

to define contractual terms because a “court’s proper and primary function” is to enforce 

the meaning intended by the contracting parties. Id. Hughes clearly complies with 

Taylor’s ultimate purpose. In Hughes, the Ninth Circuit determined whether the “sudden 

and accidental” clause was ambiguous by looking to how different jurisdictions 

interpreted the language—not by using parol evidence, as suggested by Taylor. Hughes 

22 F.3d at 1437. However, the Ninth Circuit nonetheless found the term to be ambiguous 

and then considered parol evidence to determine the parties’ intent. Id. Importantly, 

Hughes analyzed the meaning of “sudden and accidental” using the factors adopted in 

Wilson—the very framework that Talley suggests the court use here. (Compare Doc.196 

at 8 with Hughes, 22 F.3d at 1437). Thus, despite Talley’s arguments to the contrary, the 

Ninth Circuit’s finding that the drafting history was unpersuasive on the issue of the 

contracting parties’ intent confirms that the holding was ultimately proper. See Taylor at 

175 Ariz. at 153, 854 P.2d at 1139 (“At what point a judge stops listening to testimony 

that white is black and that a dollar is fifty cents is a matter for sound judicial discretion

and common sense.”)(emphasis added). Therefore, as Hughes did not blindly reject the 

term’s drafting history but found it immaterial to the parties’ intent, Taylor does not 

indicate that Hughes is incorrect. 3 

 Talley’s argument concerning Henderson is equally unconvincing. Talley argues 

 

3

 Talley also argues that, because Taylor was decided just five days before Hughes was argued and submitted for decision to the Ninth Circuit, that the Circuit did not 

consider Taylor in its decision. (Doc. 194 at 16.) This argument is unconvincing as the Ninth Circuit’s written opinion was offered more than five months after Taylor was decided. 

Case 2:11-cv-01007-SMM Document 200 Filed 03/31/15 Page 7 of 12
- 8 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

that Hughes should be disregarded because Henderson “rests on just the kind of evidence 

Hughes improperly rejected”—i.e. a term’s drafting history. (Doc. 194 at 16.) However, 

the cases are distinguishable. In Henderson, the court invoked the reasonable 

expectations doctrine in route to considering the drafting history because the policy was 

purchased by “average” consumers not expected to read or understand or negotiate their 

contract. Henderson, 189 Ariz. at 190, 939 P.2d at 1343. In Hughes, the district court and 

Ninth Circuit denied use of the reasonable expectations doctrine because the contract at 

issue was not a contract of adhesion. Hughes, 783 F.Supp. at 1229 (“Because [The 

insured] is a sophisticated buyer of insurance, it defies common sense to call this a 

contract of adhesion.”); Id at 1231 (“Again, it is not lost on the Court that Hughes is not 

an unsophisticated buyer of insurance.”); Hughes, 22 F.3d at 1437 (“We agree with and 

adopt the district court’s analysis....”). The Court is therefore unconvinced that an 

opinion analyzing a different type of insurance policy, bought by a different kind of 

consumer, and analyzed under an unavailable legal doctrine calls Hughes into question. 

 In sum, Taylor and Henderson clarify—not materially alter—Arizona’s approach 

to contract interpretation. Neither decision changes the outcome of Hughes. This Court is 

therefore bound to follow Circuit precedent and interpret “sudden and material” as having 

a temporal meaning. 4

 As Talley has offered neither fact nor legal argument suggesting 

that its injuries were the result of a “sudden” event, the Court will grant summary 

judgment in Allstate’s favor. 

b. Talley’s Motion for Partial Summary Judgment 

 Despite having decided to grant summary judgment in Allstate’s favor, the Court 

will address Talley’s cross motion on the pollution exclusion. 

 Talley argues that the doctrine of regulatory estoppel provides alternative grounds 

 

4 The Court’s decision to follow Hughes makes Allstate’s additional argument 

superfluous. Allstate bases its argument and Talley bases its response on the hypothetical 

situation in which the Court would not attribute a temporal meaning to “sudden.” (See Docs. 131 

at 12-16; 196 at 13-20.) The Court, therefore, having indeed attributed a temporal meaning to 

“sudden,” will not address Allstate’s secondary argument in the interest of judicial efficiency.

Case 2:11-cv-01007-SMM Document 200 Filed 03/31/15 Page 8 of 12
- 9 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

on which Allstate should be prevented from invoking the pollution exclusion.5 (Doc. 194 

at 7-14.) Per Talley’s argument, regulatory estoppel, a doctrine foreign courts have used 

to preclude insurers from taking a position contrary to one allegedly presented to a 

regulatory agency, see e.g. Morton Int'l, Inc. v. Gen. Acc. Ins. Co. of Am., 134 N.J. 1 

(1993), is an iteration of estoppel and therefore should be recognized in Arizona because 

“[e]stoppel gives effect to the reasonable expectations doctrine entrenched in Arizona 

law.” (Doc. 194 at 11.) In response, Allstate argues that the regulatory estoppel claim 

must fail because Talley does not prove that the parties relied on the drafting history in 

their negotiations. (Doc. 136 at 11-17.) Further, Allstate argues that the use of Arizona’s 

reasonable expectations doctrine is unfounded. (Doc. 136 at 16-19.) In its Reply, Talley 

clarifies that the application of regulatory estoppel “hinges” on the reasonable 

expectations of the state regulators, not the parties. (Doc. 137 at 10.) Having reviewed the 

parties’ positions at length, the Court agrees with Allstate. 

 The Court is mindful that Arizona has never adopted the doctrine of regulatory 

estoppel. In fact, Talley concedes that Arizona has “not...addressed regulatory estoppel 

in this context” (Doc. 194 at 11) before setting forth its regulatory estoppel argument. As 

discussed previously, this Court is bound to Circuit precedent in the absence of an 

“indication” or “subsequent change in state law” suggesting that the decision is incorrect. 

Owen, 713 F.2d at 1464; Newell, 489 F.2d at 107. In Morton, the New Jersey Supreme 

Court defined the “critical issue” before it as “whether [New Jersey] should give effect to 

the literal meaning of an exclusionary clause....” Morton, 134 N.J. at 72. The Ninth 

Circuit clearly addressed this issue in Hughes by interpreting “sudden and accidental” as 

having a temporal meaning. Hughes, 22 F.3d at 1437. The Court is therefore unconvinced 

that it should depart from Circuit precedent by way of a foreign legal doctrine employed 

exclusively by foreign courts. 

 

5

 Talley also argues that “the ‘sudden and accidental’ clause must be interpreted as lacking a temporal element as a matter of law.”(Doc. 194 at 14-21.) The Court has 

already decided against this proposition and will therefore focus its analysis on the unique arguments set forth in Talley’s motion for partial summary judgment. 

Case 2:11-cv-01007-SMM Document 200 Filed 03/31/15 Page 9 of 12
- 10 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

 Moreover, the Court is unconvinced that Arizona courts would adopt the 

regulatory estoppel doctrine. The problem lies with Talley’s reliance on the doctrine of 

reasonable expectations. Arizona courts invoke the reasonable expectation doctrine when 

determining the intent of an insured to interpret terms of an adhesion contract. Darner, 

140 Ariz. at 391, 682 P.2d at 396 (adopting RESTATEMENT (SECOND) 

CONTRACTS, § 211 (1981)). “An adhesion contract is typically a standardized form 

offered to consumers of goods and services on essentially a ‘take it or leave it’ basis....” 

Broemmer v. Abortion Servs. of Phoenix, Ltd., 173 Ariz. 148, 150, 840 P.2d 1013, 1015 

(1992). “The distinctive feature of a contract of adhesion is that the weaker party has no 

realistic choice as to its terms.” Id. Accordingly, Arizona Court’s would not use the 

doctrine of reasonable expectations to determine either the regulators’ or the parties’ 

intent in this case. 

 The court does not find that the Arizona insurance regulators either were insureds 

or lacked “realistic choices” in negotiating the content to the pollution exclusion. Indeed, 

state regulators presumably held the ultimate power of negotiation. Therefore, Arizona 

courts would not use the reasonable expectations doctrine to determine the regulators’ 

intent. See Darner, 140 Ariz. at 391. 

 Further, just as Hughes rejected the insured’s invocation of the reasonable 

expectations doctrine because the insured was a “sophisticated buyer of insurance” that 

employed its own insurance department and professional insurance brokers, see Smith v. 

Hughes Aircraft Co. Corp., 783 F. Supp. 1222, 1231 (D. Ariz. 1991) aff'd in part, rev'd in 

part sub nom. Smith v. Hughes Aircraft Co., 22 F.3d 1432 (9th Cir. 1993), the Court 

finds that application of the reasonable expectations doctrine is untenable when applied to 

Talley. At the time of the Northbrook policies, Talley was a self-described “diversified, 

multi-industry corporation with domestic and international operations serving worldwide 

markets.” (Docs. 136-8 at 7; 136-7 at 6.) Talley had both retail and wholesale brokers 

negotiating its insurance contracts. (See Doc. 136-6 at 3-4) (Letter from Talley’s 

insurance broker to Northbrook: “Please advise if Northbrook Insurance Company is not 

Case 2:11-cv-01007-SMM Document 200 Filed 03/31/15 Page 10 of 12
- 11 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

able to comply with any of these points. We are delivering the policy to Talley Industries: 

however, anticipate their objections in the areas indicated.”) Also, Talley’s Director of 

Insurance, Charles Lorenz, an “expert” on insurance matters, handled insurance 

procurement for Talley and all of its subsidiaries. (Doc. 136-9 at 4, 7-10.) The Court 

therefore will not apply the reasonable expectations doctrine to determine Talley’s intent. 

 In the end, regardless of which entity’s intent—Arizona’s regulatory insurance 

agency or Talley—the Court sets out to determine, use of Arizona’s reasonable 

expectation doctrine would be improper. As the application of Talley’s regulatory 

estoppel argument “hinges” on the reasonable expectations doctrine, the Court will 

therefore deny Talley’s argument as a matter of law. 

CONCLUSION 

For the reasons set forth above the Court will grant Allstate’s motion for summary 

judgment and deny Talley’s motion for partial summary judgment regarding the pollution 

exclusion. Accordingly, 

IT IS HEREBY ORDERED granting Allstate’s Motion for Summary Judgment 

on the Pollution Exclusion (Doc. 131). The Court therefore denies Count II (Breach of 

Contract) with prejudice. (Doc. 1 at 11-12.) No final determination as to Count I 

(Declaratory Judgment) will be given until the Court addresses the distinct issues 

presented in the parties additional motions for summary judgment. (Doc. 1 at 10-11.) 

IT IS FURTHER ORDERED denying Talley’s Motion for Partial Summary 

Judgment (Doc. 194). 

IT IS FURTHER ORDERED granting the parties’ request for oral argument on 

the issues contained in Talley’s Motion for Partial Summary Judgment Regarding 

Property Damage (Doc. 190) and Allstate’s Motion for Summary Judgment on Late 

Notice and Named Insured Issues (Doc. 193). The Court will hear oral argument on 

Wednesday, April 22, 2015, at 2:00 p.m. in Courtroom 401, 401 West Washington St., 

Phoenix, Arizona. Both Plaintiff and Defendant will be allotted 30 minutes to present 

their arguments regarding Allstate’s motion (Doc. 193). Plaintiff and Defendant will 

Case 2:11-cv-01007-SMM Document 200 Filed 03/31/15 Page 11 of 12
- 12 - 

1 

2 

3 

4 

5 

6 

7 

8 

9 

10 

11 

12 

13 

14 

15 

16 

17 

18 

19 

20 

21 

22 

23 

24 

25 

26 

27 

28 

thereafter be granted 20 minutes to present their arguments regarding Talley’s motion 

(Doc. 190). (The difference in allotted time attributed to the overlapping issues and 

arguments in the parties’ motions.) 

IT IS FURTHER ORDERED that the Court shall hold the parties’ remaining 

motions for partial summary judgment regarding allocation (Docs. 165; 167) in abeyance. 

 DATED this 31st day of March, 2015 

Honorable Stephen M. McNamee

Senior United States District Judge

Case 2:11-cv-01007-SMM Document 200 Filed 03/31/15 Page 12 of 12