Source: https://casetext.com/case/us-fidelity-guar-v-m-grain
Timestamp: 2019-08-22 14:06:06
Document Index: 501527809

Matched Legal Cases: ['§ 9601', '§ 9611', '§ 9604', '§ 9606', '§ 79', '§ 44', 'in Casu']

U.S. Fidelity Guar. v. M. Grain, 734 F. Supp. 437 | Casetext
U.S. Fidelity Guar. v. M. Grain
734 F. Supp. 437 (D. Kan. 1990)
U.S. Fidelity Guar.v.M. Grain
United States District Court, D. KansasMar 20, 1990
Arthur S. Chalmers, Kahrs, Nelson, Fanning, Hite Kellogg, and Stephen W. Kerwick, Foulston Siefkin, Wichita, Kan., Thomas R. Hill, Overland Park, Kan., Richard I. Stephenson, Wichita, Kan., and Mitchell L. Lathrop, San Diego, Cal., for plaintiffs.
J. Stan Sexton, Hampton, Royce, Engleman Nelson, Salina, Kan., for defendants.
This action was commenced on October 29, 1986, by United States Fidelity Guaranty Company (USF G) seeking a declaratory judgment that there is no coverage under its policies for the environmental claims against the defendants. The defendants answered and counterclaimed and later successfully joined the other insurers as plaintiffs to their counterclaim. Each of the insurers has answered the counterclaim denying coverage of these claims for indemnity and defense arising from defendants' liability to the United States Environmental Protection Agency (U.S. EPA) and the Illinois Environmental Protection Agency (Illinois EPA) under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. § 9601 et seq. (CERCLA), or the Illinois Environmental Protection Act, Ill.Rev.Stat. ch. 111 1/2, par. 1001 et seq. (1987).
In ruling on a motion for summary judgment, the trial court conducts a threshold inquiry of the need for a trial. Without weighing the evidence or determining credibility, the court grants summary judgment when no genuine issue of material fact exists and the movant is entitled to judgment as a matter of law. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250, 106 S.Ct. 2505, 2511, 91 L.Ed.2d 202 (1986). Essentially, the inquiry is "whether the evidence presents a sufficient disagreement to require submission to a jury or whether it is so one-sided that one party must prevail as a matter of law." Anderson, 477 U.S. at 251-252, 106 S.Ct. at 2512.
An issue of fact is "genuine" if the evidence is significantly probative or more than merely colorable such that a jury could reasonably return a verdict for the nonmoving party. Id. at 248, 106 S.Ct. at 2510. An issue of fact is "material" if proof thereof might affect the outcome of the lawsuit as assessed from the controlling substantive law. 477 U.S. at 249, 106 S.Ct. at 2510. Factual inferences are drawn to favor the existence of triable issues, and where reasonable minds could ultimately reach different conclusions, summary judgment is inappropriate. See Riley v. Brown Root, Inc., 896 F.2d 474 (10th Cir. 1990).
The movant's initial burden under Fed.R.Civ.P. 56 is to show the absence of evidence to support the nonmoving party's case. Windon Third Oil and Gas v. Federal Deposit Ins., 805 F.2d 342, 345 (10th Cir. 1986), cert. denied 480 U.S. 947, 107 S.Ct. 1605, 94 L.Ed.2d 791 (1987). The movant must specify those portions of "`the pleadings, depositions, answers to interrogatories and admissions on file, together with affidavits if any,'" which demonstrate the absence of a genuine issue of fact. Windon, 805 F.2d at 345 (quoting Fed.R.Civ.P. 56(c)). It may be sufficient for the movant to establish that the alleged factual issues are without legal significance. Dayton Hudson Corp. v. Macerich Real Estate Co., 812 F.2d 1319, 1323 (10th Cir. 1987).
The opposing party may not rest upon mere allegations or denials in the pleadings but must set forth specific facts supported by the kinds of evidentiary materials listed in Rule 56(c). Anderson, 477 U.S. at 250, 106 S.Ct. at 2511. The nonmoving party's evidence is deemed true and all reasonable inferences are drawn in his favor. Windon, 805 F.2d at 346. More than a "disfavored procedural shortcut," summary judgment is an important procedure "designed `to secure the just, speedy and inexpensive determination of every action.' Fed.R.Civ.P. 1." Celotex Corp. v. Catrett, 477 U.S. 317, 327, 106 S.Ct. 2548, 2555, 91 L.Ed.2d 265 (1986).
5. Concerned that some of the chemicals being stored were banned and extremely poisonous, Mr. Bunting, who had been a salesman, general manager and vice-president of Agro, told Mr. Trowbridge sometime before 1976 that the stored chemicals should be disposed of in an EPA dump.
When used in this policy . . .:
A very basic background of the liabilities and procedures under CERCLA is useful in understanding this case. Passed in 1980, CERCLA established a "Superfund" to finance the cleanup of hazardous waste sites. 42 U.S.C. § 9611. After such a site has been identified as needing remedial action, the U.S. EPA has two express statutory options. First, if the responsible party refuses or is unable to take proper action, the U.S. EPA may respond by cleaning up the site through the financial assistance of the Superfund and then bring a subsequent cost recovery action to reimburse the fund. 42 U.S.C. § 9604, 9607. Second, the U.S. EPA can seek an injunction to compel a cleanup or hand down its own administrative order. 42 U.S.C. § 9606. Note, Developments — Toxic Waste Litigation, 99 Harv.L.Rev. 1459, 1484-1486 (1986). A third option may exist where the U.S. EPA through negotiations obtains a voluntary agreement from a responsible party to clean up a site. Note, 99 Harv.L.Rev. at 1486 n. 9.
Before embarking on any analysis of the insurance policy terms, the general rules of contract construction must be revisited. Since each of the insurance policies appear to have been negotiated and signed in Kansas by representatives of Morrison Grain and Morrison Coal, the law of Kansas will govern the contract at issue. Commercial Union Ins. v. John Massman Contracting, 713 F. Supp. 1403, 1404-05 (D.Kan. 1989). The construction and effect of a contract for insurance is generally a matter of law, and when the facts are admitted or uncontroverted the court may determine whether the particular policy terms are applicable. American Media, Inc. v. Home Indemnity Co., 232 Kan. 737, 740, 658 P.2d 1015 (1983).
Construction of any contract begins with determining whether the challenged provision is ambiguous. Ambiguity arises when a natural and reasonable reading of the whole contract creates uncertainty or doubt about the meaning of particular terms or provisions. Lightner v. Centennial Life Ins. Co., 242 Kan. 29, 35, 744 P.2d 840 (1987). If after reasonably applying the pertinent rules of construction to the face of the instrument, a genuine uncertainty as to the proper one of two or more possible meanings is produced, an ambiguity is said to exist. Dronge v. Monarch Ins. Co. of Ohio, 511 F. Supp. 1, 4 (D.Kan. 1979). Ambiguities are not properly derived from fragmenting the written instrument. Farm Bureau Mut. Ins. Co. v. Horinek, 233 Kan. 175, 180, 660 P.2d 1374 (1983).
Plaintiff, St. Paul Mercury Insurance Company (St. Paul), argues for the adoption of one additional step to the respective burdens, citing Fireman's Fund Ins. Companies v. Ex-Cell-O Corp., 702 F. Supp. 1317, 1328-29 (E.D.Mich. 1988), and Fischer Porter Co. v. Liberty Mut. Ins. Co., 656 F. Supp. 132, 140 (E.D.Pa. 1986). In both cases, the insured was given the burden of proving that the "sudden and accidental" exception to the pollution exclusion applied. The courts looked to the general rules outlined in 19 G. Couch, Couch on Insurance 2d § 79.385, at 338 (1983):
In many instances, a policy exception is itself subject to exceptions or limitations. When this is the case, the insurer in proving that the loss comes within the exception must also proceed further to show that the exception or limitation to the exception does not preclude the application of the exception. . . .
See also Ex-Cell-O Corp., 702 F. Supp. at 1328; Fischer Porter Co., 656 F. Supp. at 140. No Kansas law on this issue has been cited or provided.
The threshold issue is whether there has been an "occurrence" under the basic terms of the insuring agreement. As previously set forth in paragraph fourteen of the statement of uncontroverted facts, the insurers agreed to pay on behalf of the insured all damages from "bodily injury" and "property damage" for which the insured is liable and which were caused by an "occurrence." After 1966, the term "occurrence" replaced the term "accident," in the standard CGL policy as the event triggering coverage. Id. The "occurrence" language is generally understood to offer broader coverage than that offered by the former term, "accident." 11 G. Couch, Couch on Insurance 2d § 44:285 at 437 (1982). The change to occurrence-based coverage was made in response to the need for coverage against damages resulting from continued or repeated exposure. Broadwell Realty Services v. Fidelity and Casualty Company of New York, 218 N.J. Super. 516, 528 A.2d 76, 84 (1987); United Pacific Insurance Company v. Van's Westlake Union, Inc., 34 Wn. App. 708, 664 P.2d 1262, rev. denied, 100 Wn.2d 1018 (1983).
Plaintiffs' policies define "occurrence" as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." On claims for pollution damages, the courts have also focused their determination of a covered "occurrence" upon whether the insured expected or intended the actual damages to be the ordinary consequence or result of the insured's conduct. See e.g. City of Johnstown, N.Y. v. Bankers Standard Ins., 877 F.2d 1146, 1149-50 (2nd Cir. 1989); American Motorists Ins. Co. v. General Host Corp., 667 F. Supp. 1423, 1429-30 (D.Kan. 1987); Buckeye Union Ins. Co. v. Liberty Solvents Chemicals Co., 17 Ohio App.3d 127, 477 N.E.2d 1227 (1984) (and cases cited in each). Stated another way, only accidental losses are covered. Johnstown, 877 F.2d at 1150. The Second Circuit explains that New York courts have looked to the nexus between the act and the resulting damage and have denied coverage only when the damages flow directly and immediately from an intentional act. Id.
The policy provided that the injury must be caused by an "occurrence" which is defined as "an accident . . . which results . . . in bodily injury or property damage neither expected nor intended from the standpoint of the insured." The insurer's investigation report disclosed the insured neither expected nor intended bodily injury to result. Under this policy, coverage is avoided only when an act results in an intentional injury. An intentional act may result in an unintended injury. As we pointed out in Gowing [v. Great Plains Mutual Ins. Co., 207 Kan. 78, 483 P.2d 1072 (1971)], at page 82, ". . . the distinction between an intentional injury and an unintended injury resulting from an intentional act has been recognized by various authorities." Since the undisputed facts disclose the personal injury to Rounkles was not the intended result of Spruill's acts, the policy of insurance covered Spruill for Rounkles' personal injury.
Since Spruill the courts in Kansas have had other opportunities to consider what nexus must exist between the injury and causal act for the injury to be neither expected nor intended from the standpoint of the insured. The Kansas Court of Appeals in Casualty Reciprocal Exchange v. Thomas, 7 Kan. App. 2d718, 721, 647 P.2d 1361, rev. denied 231 Kan 799 (1982), held that "where an intentional act results in injuries which are a natural and probable result of the act, the injuries are intentional." The trial court was found to have appropriately relied upon the well-established presumption that a person intends the natural and probable consequences of his actions. Id.
A year later, the Kansas Supreme Court affirmed the denial of coverage to an insured minor who had shot another youth in the eye with a BB gun. Bell v. Tilton, 234 Kan. 461, 471-72, 674 P.2d 468 (1983). The court explained that "if from the acts, circumstances, and inferences of the case, it appeared Rusty Tilton [insured] had the desire to cause the consequences of his acts or he believed the consequences were substantially certain to result, his conduct was intentional and the policy exclusion [injury which is "either expected or intended] was operative." 234 Kan. at 472, 674 P.2d 468.
Finally, Judge Theis in General Host Corp. found no occurrence where the insured knew its operation was causing pollution and had received complaints about it from landowners and state agencies for years. 667 F. Supp. at 1430. The reasoning in each of these decisions reflects the operation of both the maxim that everyone is constructively held to intend the natural consequences of his acts and the self-evident proposition that actions intended or anticipated cannot be accidental. See generally Hutchinson Water Co. v. United States Fidelity G. Co., 250 F.2d 892, 894 (10th Cir. 1957).
In 1973, a clause was added to the standard CGL policy which excluded coverage for damages "arising out of the discharge, dispersal, release or escape . . ." of "toxic chemical, . . ., waste materials, . . ., 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." Faced with greater potential liability as a result of new federal environmental laws, the insurers adopted the above standard exclusion in an effort to limit their liability. Note, 27 Washburn L.J. at 170-71. By exposing them to uninsured liability for intentional pollution, this clause was also designed to motivate insureds into reducing or stopping such pollution. Grant-Southern Iron Metal Co. v. CNA Ins. Co., 669 F. Supp. 798, 800 (E.D.Mich. 1986); Broadwell Realty Services v. Fidelity and Casualty Company of New York, 218 N.J. Super. 516, 528 A.2d 76, 85 (1987); see also General Host Corp., 667 F. Supp. at 1431. In simple and plain terms, the clause essentially excludes any coverage for damages resulting from the dispersal of pollutants unless the act of dispersal was "sudden and accidental." As will be shown, a number of courts, in a quest for finding coverage, have strained the plain meaning of the terms and circumvented the obvious scope of the clause.
The early court decisions construing the pollution exclusion discerned an internal ambiguity in the policy between the possible meaning of "sudden," which had been argued by insurers to be an instantaneous discharge of pollutants, and the broad definition of "occurrence," which is found in the policy to include a continuous exposure to conditions. See e.g. Allstate Ins. Co. v. Klock Oil Co., 73 A.D.2d 486, 426 N.Y.S.2d 603, 605 (1980); Jackson Township Municipal Utilities Auth. v. Hartford Accident Indem. Co., 186 N.J. Super. 156, 451 A.2d 990, 994 (1982); Buckeye Union Ins., 477 N.E.2d at 1233-34; United Pacific Ins. Co. v. Van's Westlake Union, Inc., 34 Wn. App. 708, 664 P.2d 1262, 1265 (1983). The absence of any policy definition for "sudden and accidental" has been another reason for finding the phrase susceptible to more than one reasonable meaning. See e.g. Buckeye Union Ins. Co., 477 N.E.2d at 1233; Lansco. Inc. v. Dept. of Environmental Protection, 138 N.J. Super. 275, 350 A.2d 520, 524 (1975), aff'd, 145 N.J. Super. 433, 368 A.2d 363 (1976). On the weight of this perceived ambiguity, these courts then called upon the time-honored rule of construction in favor of the insured and ruled that the exclusion is nothing more than a restatement of the definition of "occurrence," that is, an unexpected and unintentional event. See e.g. Jackson Township Municipal Utilities Auth., 451 A.2d at 994; Buckeye Union Ins. Co., 477 N.E.2d at 1234.
More recently, the courts have found no ambiguity in the pollution exclusion clause and have given the phrase, "sudden and accidental," its plain and simple meaning. U.S. Fidelity and Guar. v. Star Fire Coals, Inc., 856 F.2d 31, 33-35 (6th Cir. 1988); Federal Ins. Co. v. Susquehanna Broadcasting Co., 727 F. Supp. 169, 177-78 (M.D.Pa. 1989); C.L. Hauthaway Sons v. American Motorists Ins., 712 F. Supp. 265, 268-69 (D.Mass. 1989); Fireman's Fund Ins. Companies v. Ex-Cell-O Corp., 702 F. Supp. 1317, 1323-1326 (E.D.Mich. 1988); State of N.Y. v. Amro Realty Corp., 697 F. Supp. 99, 110 (N.D.N.Y. 1988); U.S. Fidelity Guar. Co. v. Murray Ohio Mfg. Co., 693 F. Supp. 617, 621 (M.D.Tenn. 1988), aff'd, 875 F.2d 868 (6th Cir. 1989); Borden, Inc. v. Affiliated FM Ins. Co., 682 F. Supp. 927, 930 (S.D.Ohio 1987), aff'd, 865 F.2d 1267 (6th Cir.), cert. denied, ___ U.S. ___, 110 S.Ct. 68, 107 L.Ed.2d 35 (1989); American Motorists Ins. Co. v. General Host Corp., 667 F. Supp. 1423, 1429-30 (D.Kan. 1987); Powers Chemco, Inc. v. Federal Insurance Co., 74 N.Y.2d 910, 549 N.Y.S.2d 650, 548 N.E.2d 1301 (N.Y.Ct.App. 1989). This court is persuaded to fall in step with this current line of decisions. Courts have aptly characterized efforts to create ambiguity as "something only a lawyer's ingenuity" could achieve, General Host Corp., 667 F. Supp. at 1429, and as a "strain" upon "logic." Waste Management of Carolinas, Inc. v. Peerless Insurance Co., 315 N.C. 688, 340 S.E.2d 374, 387 (1986). The common-sense meaning of simple terms should not be contorted into a vehicle for reaching a planned destination.
The terms, "sudden and accidental," are unambiguous. As commonly used, the meaning of "sudden" combines both the elements of without notice or warning and quick or brief in time. C.L. Hauthaway Sons, 712 F. Supp. at 268; Murray Ohio Mfg. Co., 693 F. Supp. at 621. "Accidental" is typically defined from the subjective viewpoint of happening unexpectedly or by chance, while "sudden" has an objective definition. General Host Corp., 667 F. Supp. at 1428. Sudden connotes "a temporal aspect of immediacy, abruptness, swiftness, quickness, instantaneousness, and brevity." C.L. Hauthaway Sons, 712 F. Supp. at 268.
To divorce "sudden" of its temporal component would eviscerate it of any independent meaning or force. "If `sudden' refers only to the individual's subjective state of mind or capacity for forethought, it adds nothing to what the term `accidental' has already delivered. . . ." Id. Nor can this court accept the proposition that the phrase, "sudden and accidental," should be construed as an entity having but the one meaning of unexpected. Depriving "sudden" of its distinct temporal meaning and rendering it mere surplusage because of its use in conjunction with "accidental" directly contradicts Kansas law which requires a contract to be read as a whole and meaning to be given to all of its terms. If the discharge of pollutants is brief or short, unexpected or unanticipated, not gradual or sustained, and not intended or expected, then the "sudden and accidental" exception applies.
In support of their argument for a subjective determination of "sudden and accidental," defendants cite General Host Corp., 667 F. Supp. at 1426; Payne v. United States Fidelity Guar. Co., 625 F. Supp. 1189, 1192-93 (S.D.Fla. 1985) (quoting Lansco, Inc. v. Department of Environmental Protection, 138 N.J. Super. 275, 350 A.2d 520 (1975)); Family Farm Mutual Insurance Co. v. Bagley, 64 A.D.2d 1014, 409 N.Y.S.2d 294, 295-96 (1978). Each of these decisions state that whether an event is "accidental" is judged from the viewpoint of the insured. Since "accidental" refers to an unexpected release of pollutants, it necessarily follows that expectations must be judged from some perspective.
We also reject plaintiff's contention that since it was not the actual polluter, but merely inherited the problem from the prior landowner, the pollution exclusion clause cannot bar its present insurance claim. Simply put, there is nothing in the language of the pollution exclusion clause to suggest that it is not applicable when liability is premised on the conduct of someone other than the insured.
74 N.Y.2d at 911, 549 N.Y.S.2d at 651, 548 N.E.2d at 1302. See also Avondale Industries, Inc. v. Travelers Indem. Co., 894 F.2d 498, 499-500 (2nd Cir. 1990). This court believes this is the appropriate approach, and when applied to the facts of the present case, would compel a finding that both releases of fertilizers and pesticides — Latham and Meredosia — were neither accidental nor sudden.
As a member or the parent corporation to a member of the Agra joint venture, defendants are not in a position to separate themselves from the non-accidental acts performed by other members of the joint venture in the exercise of their authority and in the ordinary course of the joint venture's business. Under Kansas law, a joint venturer stands as both a principal and an agent to all other joint venturers "`with an equal right of control of the means employed to carry out the common purpose of the venture.'" Goben v. Barry, 234 Kan. 721, 725, 676 P.2d 90 (1984) (quoting Neighbors Construction Co., Inc. v. Seal-Wells Construction Co., Inc., 219 Kan. 382, 385, 548 P.2d 491 (1976)). Because for all practical purposes it is identical to a partnership, a joint venture is governed by the same rules controlling partnerships. Goben, 234 Kan. at 725, 676 P.2d 90. The knowledge of one partner is constructively the knowledge of all other partners. E.F. Corporation v. Smith, 496 F.2d 826, 830 (10th Cir. 1974).
The express terms of the pollution exclusion do not preclude the application of these general partnership principles. The exclusionary clause does not state "sudden and accidental" from "the standpoint of the insured." For this reason, this case is not controlled by a line of decisions in which coverage has been extended to one partner for his vicarious liability for the other partner's assault and battery of a third person. Jones v. Harper, 75 N.M. 557, 408 P.2d 56 (1965); Malanga v. Manufacturers Casualty Ins. Co., 28 N.J. 220, 146 A.2d 105 (1958) (and cases cited in both). The basis of that insurance coverage is an express condition covering assault and battery "unless committed by or at the direction of the insured." Id. Obviously, public policy does not bar insurance coverage on a partner's vicarious liability for another partner's intentional act. See American States Ins. Co. v. Borbor by Borbor, 826 F.2d 888, 893 (9th Cir. 1987). Because "sudden and accidental" is not expressly linked by the policy to the insured's viewpoint, the policy definition of "insured" does not control the determination of that viewpoint.
Though it is unnecessary to address the plaintiffs' other arguments because of the above ruling, the court is also persuaded to follow the line of decisions holding that CERCLA response costs are not recoverable under CGL insurance. Cincinnati Ins. Co. v. Milliken and Co., 857 F.2d 979, 980-81 (4th Cir. 1988) (South Carolina law) (follows Armco and Mraz); Continental Ins. v. Northeastern Pharmaceutical, 842 F.2d 977, 986-87 (8th Cir.), cert. denied, ___ U.S. ___, 109 S.Ct. 66, 102 L.Ed.2d 43 (1988) (en banc) (Missouri law) (cleanup costs under CERCLA are not damages); Maryland Cas. Co. v. Armco, Inc., 822 F.2d 1348, 1352-54 (4th Cir. 1987), cert. denied, 484 U.S. 1008, 108 S.Ct. 703, 98 L.Ed.2d 654 (1988) (Maryland law) (costs to comply with the directives of a regulatory agency are not covered damages); Verlan, Ltd. v. John L. Armitage Co., 695 F. Supp. 950, 954-55 (N.D.Ill. 1988) (Illinois law). See Mraz v. Canadian Universal Ins. Co., Ltd., 804 F.2d 1325, 1329 (4th Cir. 1986) (Maryland law) (response costs are economic loss, not property damages); Contra Avondale Industries, Inc. v. Travelers Indem. Co., 887 F.2d 1200, 1206-07 (2nd Cir. 1989) (New York law); National Indem. Co. v. U.S. Pollution Control Inc., 717 F. Supp. 765, 766-67 (W.D.Okl. 1989) (Oklahoma law); Intel Corp. v. Hartford Acc. and Indem. Co., 692 F. Supp. 1171, 1186-1193 (N.D.Cal. 1988) (California law). As commonly used in the law, damages are distinct from equitable relief or restitution, and CERCLA likewise differentiates between clean-up costs and damages. Verlan, Ltd., 695 F. Supp. at 954. Under Kansas law, the term "damages" is not ambiguous and should be given its usual meaning, even though it may be narrower than the insured would desire. Even if a dictionary definition of "damages" were to be followed, the court agrees with plaintiff USF G that response costs are not compensation for an injury. More aptly put, particularly under the facts of this case, the response costs are the expense of preventing or mitigating the injury. Plaintiffs are entitled to summary judgment on this issue also.