Opinion ID: 1251964
Heading Depth: 1
Heading Rank: 2

Heading: Arco Industries

Text: This Court recounted the following summary of the factual and procedural background in Arco Industries Corp. v. American Motorists Ins. Co., 448 Mich. 395, 399-401, 531 N.W.2d 168 (1995), when it was previously before us concerning a different issue: Plaintiff Arco Industries Corporation is a small automotive parts manufacturer that has operated a manufacturing plant in Schoolcraft, Michigan, since 1967. As part of the manufacturing process, the automotive parts are dipped into liquid plastisol or vinyl. Volatile organic compounds (VOCs) such as perchloroethylene, trichloroethylene, 1-2 dichloroethylene and vinyl chloride, were used to clean the parts during the manufacturing process and to remove plastisol from the plant floors. The plant floor was designed with a trench drain system that drained waste from the plant floor into an unlined seepage lagoon located in the back of the plant. As a result, VOCs contaminated the seepage lagoon and ground water. In November, 1985, the Department of Natural Resources notified Arco that the seepage lagoon was contaminated with VOCs, and records indicated that Arco was the source of the contamination. After Arco's failure to resolve the problem, the DNR filed suit against Arco in federal court in an attempt to compel Arco to remedy the VOC contamination and collect claimed response costs. Subsequently, the State of Michigan and Arco entered into a consent decree whereby Arco agreed to pay the state $450,000 in response costs together with attorney fees. Arco also agreed to develop and implement a multimillion dollar ground water and soil remediation program. Arco's insurer, AMICO, refused to defend or indemnify in the underlying litigation alleging that the insurance contract did not cover this type of incident. As a result, on February 4, 1987, Arco filed suit against AMICO, seeking to compel the insurer to honor its contractual obligations. In response to the suit, AMICO's defense was that this type of incident was not a covered occurrence within the meaning of the applicable comprehensive liability policies because Arco either expected or intended the pollution that resulted from its manufacturing process. The trial court found that the contamination was not anticipated by Arco, and that there was no showing that there was an intention by anyone to contaminate. Thus, on September 28, 1990, a judgment was entered compelling AMICO to pay its allocated share (68.63 percent) of all indemnifiable losses up to the aggregate limits of AMICO's coverage of $3.5 million. The Court of Appeals, however, reversed the trial court's decision and held that AMICO did not have the responsibility to defend or indemnify Arco. The Court held that there were clearly intentional discharges of VOCs by Arco employees and Arco either should have foreseen the result of the intentional acts, knew, or should have known that such practices would result in a substantial probability that VOCs would contaminate the soil and ground water. 198 Mich.App. [347] 352-353 [497 N.W.2d 190 (1993) ]. This Court reversed and remanded, holding that a subjective, rather than an objective, standard applies to determining whether the insured expected or intended the harm. Arco, supra . On remand, the Court of Appeals again held that the defendants owed no duty of coverage, this time relying on the manifestation trigger theory to hold that because the contamination was not discovered during the policy periods, coverage had not been triggered. 215 Mich.App. 633, 546 N.W.2d 709 (1996). This Court granted leave [2] on the trigger of coverage issue and consolidated the case with Gelman Sciences.