Opinion ID: 887364
Heading Depth: 2
Heading Rank: 4

Heading: Relevant Event Under the Sudden and Accidental Exception

Text: ¶ 33 Next, we must consider whether the sudden and accidental exception of the CGL policy's pollution exclusion focuses on Ribi's initial disposal of the hazardous wastes or on the subsequent migration of these wastes away from the disposal site and the corresponding damage. Ribi maintains that the ultimate migration of its wastes into the groundwater constitutes the relevant event under the CGL policy's pollution exclusion rather than its intentional disposal of them into the landfill. ¶ 34 Other courts have taken the opposite approach. For instance, the court in LaFarge Corp. v. Travelers Indem. Co. (11th Cir. 1997), 118 F.3d 1511, held that under Florida law, it is actual discharge, not resulting damages or contamination, that must be sudden and accidental in order to fall within the exception to the pollution exclusion clause in comprehensive general liability policies. As discussed previously, basic coverage under the CGL policy arises from the occurrence of unintended damages. See ¶ 22. And the CGL policy generally excludes from basic coverage those damages that arise from the disposal of hazardous wastes. See ¶ 23. An important exception to the pollution exclusion exists, however, for those discharges that are sudden and accidental. ¶ 35 We determine that the language of the CGL policy's pollution exclusion clearly excludes coverage for property damage arising out of the discharge  of hazardous wastes into or upon the land unless such discharge . . . is sudden and accidental. (Emphasis added). The occurrence that must be sudden and accidental then, is the disposal of hazardous wastes into or upon the land from which the property damage arose, not the unexpected migration and corresponding damages. See, e.g., Warwick, 26 F.3d at 1203 (under Rhode Island law, initial disposal of waste at landfill site was relevant discharge that had to be sudden and accidental for coverage to exist under exception to pollution exclusion clause in general liability policy; release of pollutants from landfill into surrounding environment was not relevant discharge); Transamerica Ins. Co. v. Duro Bag Mfg. Co. (6th Cir. 1995), 50 F.3d 370, 373 (holding under Kentucky law that coverage barred insured's depositing of drums and fiberboard barrels containing ink and glue at landfill, when the disposal took place on regular basis or in ordinary course of business). ¶ 36 To hold otherwise eliminates the distinction between unintentional and unexpected disposal and unintentional and unexpected migration and corresponding damages. The court in Queen City Farms, Inc. v. Central Nat. Ins. Co. of Omaha (Wash. 1994), 882 P.2d 703, blurred this distinction when it held that if the damage results from the dispersal of materials into the groundwater from a place of containment where the insured believed they would remain or from which they would be safely filtered, and that dispersal was unexpected or unintended, then coverage is provided under the policies. Queen City Farms, 882 P.2d at 725. We determine instead, that whether the insured intended the hazardous wastes to migrate into the groundwater and cause damage after the intentional disposal into the land proves irrelevant. The disposal must be sudden and accidental to qualify for coverage, not the migration and corresponding damage. Even were we to apply the sudden and accidental exception to the ultimate migration of the wastes, in contradiction to our holding today, the migration was not abrupt or quick, only unintentional. We conclude, therefore, that the initial disposal, rather than the migration and any resulting damages, must be sudden and accidental in order to fall within the exception to the CGL policy's pollution exclusion clause. ¶ 37 Here Ribi intentionally disposed of hazardous wastes at the BVSL site over a three-year period. If, as we have held, the term sudden constitutes both an abrupt and a quick discharge, then without question disposing contaminants into or upon the land for a period of three years cannot be construed as sudden. Indeed, Ribi's employees transported containers of waste to BVSL each month and poured the liquid contaminants into an open, unlined, earthen pit that measured six feet deep, four feet wide, and eight feet long. Ribi's intentional disposal of hazardous wastes represents the relevant event and not the later migration of hazardous wastes from the landfill into the groundwater and neighboring property. Ribi's disposal of hazardous wastes into BVSL cannot be construed either as accidental or unexpected, and, therefore, the District Court correctly concluded that the CGL policy's pollution exclusion barred coverage. ¶ 38 Whether the District Court erred in determining Travelers had no duty to defend Ribi against claims brought by third-parties for cleanup costs. ¶ 39 Ribi argues Travelers owed it a duty to defend against the third-party suits that alleged liability potentially covered by the CGL policy. Moreover, Ribi contends that Travelers's declaratory judgment action forced the District Court to consider two issues of first impression and such legal uncertainty on its own gives rise to a duty to defend. ¶ 40 We apply the four-corners rule as the policy's language determines an insurer's duty to defend its insured. City of Bozeman v. AIU Insurance Co. (1993), 262 Mont. 370, 377, 865 P.2d 268, 272 (a liability insurer has no duty to defend an action against its insured when the claim or complaint clearly falls outside the scope of the policy's coverage). The acts giving rise to the claim form the basis for coverage, not any legal theories contained in the underlying complaint. See New Hampshire Ins. Group v. Strecker (1990), 244 Mont. 478, 481, 798 P.2d 130, 132 (holding that coverage could not be premised upon theories of negligence in the underlying complaint where based upon numerous acts of molestation that could not be deemed negligent acts). Simply put, if the asserted claim is not covered by the policy, then the insurer has no duty to defend the insured. Insured Titles, Inc. v. McDonald (1996), 275 Mont. 111, 116, 911 P.2d 209, 211. ¶ 41 The acts giving rise to the claims against Ribi are not in dispute. The third-party suits alleged that Ribi intentionally disposed of hazardous wastes at BVSL. Thus, Travelers did not need to resolve any factual disputes in analyzing its duty to defend. These circumstances differ, therefore, from those in Farmers Union Mut. Ins. Co. v. Staples, 2004 MT 108, ¶ 24, 321 Mont. 99, ¶ 24, 90 P.3d 381, ¶ 24, where we held that an insurer could not look to facts developed outside the policy language and the pleadings in analyzing its duty to defend. ¶ 42 As discussed previously, intentional disposal cannot be considered accidental under the exception to the CGL's pollution exclusion. See ¶ 26; see also Sokolowski, ¶ 15. Further, Ribi's continued disposal over several years cannot be construed as sudden under the pollution exclusion. See ¶ 26; see also Sokolowski, ¶ 15. The CGL policy bars coverage for the asserted claims because Ribi's intentional and repeated acts gave rise to the third-party suits. Accordingly, as no coverage existed, Travelers had no duty to defend Ribi. Insured Titles, Inc., 275 Mont. at 116, 911 P.2d at 211. ¶ 43 Ribi contends nevertheless that certain of Travelers's defenses present issues of first impression in Montana thereby forcing Travelers to provide a defense. We disagree. ¶ 44 The Alaska Supreme Court has concluded that the lack of court review of specific policy language proves insufficient on its own to create a possibility of coverage that requires a defense. Makarka v. Great American Ins. Co., (Alaska 2000), 14 P.3d 964, 970. In Makarka, the insured sustained injuries in a collision arising from an earlier negligent brake repair. Although the insured had cancelled her coverage before the accident, she argued it remained in effect due to the fact that the faulty brake repair work took place during the policy period. The insured based her claims on language in the policy that allowed for recovery on injuries to which this insurance applies. The insurer denied coverage based on the fact that the occurrence date of her injuries fell outside of coverage. The Alaska Supreme Court held insurers who accurately interpret their policies and give the insured timely notice of refusal need not provide a defense merely because a court has yet to interpret that particular policy language. See Makarka, 14 P.3d at 970. ¶ 45 We similarly conclude the District Court properly determined that Travelers had no duty to defend Ribi against claims brought by third-parties for cleanup costs. Travelers responded to Ribi's demand for defense and indemnity with three different reservation of rights letters. Travelers denied coverage in each, stating its investigation and participation in the defense under the policies took place under a continuing reservation of rights to decline coverage at a later time. Travelers eventually denied the claims when its investigation revealed Ribi intentionally had disposed of the hazardous wastes. Travelers's denial letters assessed Ribi's claim for injury and accurately explained that the injury occurred outside of the CGL policy's scope. Thus, the District Court correctly rejected Ribi's claim that the novelty of Travelers's defense on its own triggered a duty to provide a defense to the third-party suits. Makarka, 14 P.3d at 970. ¶ 46 Whether the District Court erred in determining that Travelers may recoup its defense costs expended on Ribi's behalf for those claims that the District Court ultimately determined were barred by the CGL policy's pollution exclusion. ¶ 47 Although the District Court initially denied Travelers's recoupment costs for the neighboring property owners' suit, it later amended its order to include these costs in addition to the costs expended in the government suits it awarded earlier. Ribi argues that an insurer may not extinguish its duty to defend potentially covered claims retroactively and that Travelers thereby waived its recoupment rights when its reservation on March 10, 1999, came five years after the initial tender of the third-party suits. Ribi further argues that Travelers's reservation letters proved ineffective because it never expressly accepted the reservation and thus Travelers may not recoup its defense costs. ¶ 48 Travelers, on the other hand, contends that we should follow decisions from other jurisdictions that allow an insurer to recover defense costs when the insurer had no duty to defend. The court in Grinnell Mut. Reinsurance Co. v. Shierk (S.D. Ill. 1998), 996 F. Supp. 836, reviewed cases from other jurisdictions for guidance in deciding whether an insurer could recover defense costs in an assault claim when it had no duty to defend under a homeowner's policy. The court in Grinnell determined that to be entitled to reimbursement, an insurer must: (1) specifically reserve the right to seek reimbursement from the insured; and (2) provide the insured with adequate notice of this potential reimbursement. Grinell, 996 F. Supp. at 839. The court held that the insured had accepted the benefit of the insurer's defense and was fully appraised that the insurer reserved its right to seek reimbursement in the event that it was later determined that it had no duty to defend the insured. Grinell, 996 F. Supp. at 839. ¶ 49 Similarly, in United Nat. Ins. Co. v. SST Fitness Corp. (6th Cir. 2002), 309 F.3d 914, the court held that an insurer may recover defense costs when the insurer did not have a duty to defend any of the asserted claims under a general liability policy where the insurer: (1) timely and explicitly reserved the right to recoup the costs; and (2) provided specific and adequate notice to the insured of the possibility of reimbursement. United, 309 F.3d at 921. The court determined a reservation of rights proves enforceable where an insurer meets these conditions even absent an express agreement by the insured. United, 309 F.3d at 921; see also Colony Insurance Co v. G&E Tires & Service, Inc. (Fla. Cir. 2000), 777 So.2d 1034, 1039 citing RESTATEMENT (SECOND) OF CONTRACTS § 69 (1981) ([a] party cannot accept tendered performance while unilaterally altering the material terms on which it is offered). ¶ 50 We likewise conclude the District Court properly determined that Travelers may recoup its defense costs expended on Ribi's behalf for those claims outside the CGL policy's pollution exclusion provision. Travelers timely and explicitly reserved its right to recoup defense costs when it notified Ribi of the reservation prior to the payment of the defense costs in letters dated February 10, 1994, for the neighboring property owners' suit and January 25, 1996, and March 10, 1999, for the state and federal government claims respectively. Travelers expressly reserved its right to recoup defense costs if a court determined that it had no duty to provide such costs. Travelers also provided specific and adequate notice of the possibility of reimbursement. Ribi implicitly accepted Traveler's defense under a reservation of rights when it posed no objections. Under these circumstances, the District Court appropriately concluded that Travelers may recoup its defense costs. ¶ 51 Whether the District Court erred in ordering Travelers to pay attorneys' fees that Ribi incurred in litigating pre-trial discovery motions. ¶ 52 Finally, Travelers argues in its cross-appeal that the District Court improperly awarded Ribi attorneys' fees to sanction Travelers for refusing to produce drafting history relating to the CGL's pollution exclusion. Travelers moved for a protective order on the basis of our holding in Sokolowski that sudden and accidental was unambiguous as a matter of law and included a temporal component. Travelers maintains that it sought the protective order to avoid the costs associated with searching for and producing the voluminous drafting history regarding the pollution exclusion. The District Court denied Travelers's motion and ordered Travelers to pay Ribi's fees incurred in litigating the motion. ¶ 53 Travelers asked the District Court to reconsider its award of fees relating to the protective order after the District Court ultimately determined on summary judgment that the CGL policy's pollution exclusion's language was unambiguous and thereby rendered extrinsic evidence inadmissible. Travelers argued that fees are warranted under Rule 37(a)(4), M.R.Civ.P., only if the losing party's position was not substantially justified and the District Court's ruling on summary judgment verified the justification for its earlier motion for a protective order. The District Court concluded, however, that Travelers's concerns of costs related to searching for and producing the drafting history were not appropriate matters for a protective order during discovery, and thus, were not substantially justified. ¶ 54 The trial court has discretion to control discovery and determine from the circumstances of the case whether the parties have complied with discovery requests. In re H.D. (1992), 256 Mont. 70, 77, 844 P.2d 114, 119. We will reverse that determination only if the substantial rights of the opposing party have been so materially affected as to allow a possible miscarriage of justice. In re H.D., 256 Mont. at 77, 844 P.2d at 119. A court may award costs under Rule 37(a)(4), M.R.Civ.P., for expenses incurred in relation to litigating motions for a protective order. If the motion is denied, the court shall require the moving party to pay the opposing party the reasonable expenses incurred in opposing the motion, including attorney fees, unless the court finds that the making of the motion was substantially justified . . . . Rule 37(a)(4), M.R.Civ.P. ¶ 55 We agree with the District Court that Ribi should have been allowed to discover the drafting history of the CGL policy's pollution exclusion and that Travelers, as the party seeking protection, failed to show good cause for its omission. Although the issues were ultimately adjudged in its favor, Travelers was not substantially justified seeking a protective order at the time due to the substantial case law relying on the drafting history in interpreting the sudden and accidental clause and its potential relevancy in aiding the court's determination. See, e.g., Textron v. Aetna Cas. & Sur. Co. (R.I. 2000), 754 A.2d 742, 751 (holding that the drafting history of the sudden and accidental exception to the pollution exclusion clause of a CGL policy facilitated an interpretation of sudden to include unexpected); Nestle Food Corp. v. Aetna Cas. & Sur. Co. (D. N.J. 1990) 135 F.R.D. 101, 104-105 (holding that the drafting history of operative language from a general liability policy is discoverable when ambiguity in policy has not been resolved); Morton Intern, Inc. v. General Acc. Ins. Co. of America (N.J. 1993), 629 A.2d 831, 847-48 (holding that the pollution exclusion's drafting and regulatory history enhanced a fuller understanding of the meaning of its terms). Further, the District Court found Travelers's systematic obstruction during discovery clearly and unequivocally stonewalling, and intentionally sought to prevent the discovery of potentially relevant material. ¶ 56 The record reveals the District Court administered the discovery process fairly. Thus, we conclude that the District Court exercised appropriate discretion in controlling discovery and did not violate Travelers's rights in compelling discovery and awarding fees. In re H.D., 256 Mont. at 77, 844 P.2d at 119. ¶ 57 For the foregoing reasons, we affirm the District Court. JUSTICES KARLA M. GRAY, W. WILLIAM LEAPHART, JAMES C. NELSON, JOHN WARNER, PATRICIA O. COTTER and JIM RICE concur.