Court Opinion

ID: 14002
Source: CourtListenerOpinion
Date Created: 2010-04-25 06:31:50+00
Date Added: 2024-06-11T16:46:33.233769
License: Public Domain

UNITED STATES COURT OF APPEALS
                            For the Fifth Circuit

                                 No.    96-10658

                            SNYDERGENERAL CORP.

                                                          Plaintiff-Appellant,

                                       VERSUS

          CONTINENTAL INS. CO. A New Hampshire Corp, ET AL,
                                               Defendants,

GREAT AMERICAN INSURANCE COMPANIES, an Ohio Corp.; UNITED STATES
FIRE INSURANCE COMPANY, a New York Corp.,

                                                  Defendants-Appellees.
                       ------------------------------

SNYDERGENERAL CORP.

                                                          Plaintiff
                              VERSUS
NORTHBROOK PROPERTY & CASUALTY INSURANCE CO.,

                                                          Defendant

             Appeal from the United States District Court
                  for the Northern District of Texas
                           February 2, 1998

Before    JOLLY, DUHÉ, and PARKER, Circuit Judges.

DUHÉ, Circuit Judge:

       Appellant SnyderGeneral sued its insurers, Great American and

U.S.     Fire,   for   costs    incurred        in   cleaning   up   groundwater

contaminated with TCE.         Appellees denied coverage on the basis of

the pollution exclusion clauses in the policies and successfully

moved for summary judgment. The district court found that not only
did the exclusion preclude coverage but also that Appellant was an

habitual polluter.           We agree that the pollution exclusion clause

precludes coverage.

                                        I

     In 1984, SnyderGeneral merged with McQuay, a Minneapolis

company       that    also   manufactured   heating   and   air   conditioning

equipment.       McQuay changed its name to SnyderGeneral.

     McQuay owned a plant in California which it operated from

1961-1974.1          The plant used TCE as a vapor degreasing solvent to

remove oil from air conditioning coils as they moved on a conveyer

belt, through a degreaser.            A still attached to the degreaser

recycled the TCE by vaporizing it to separate it from the oil.             The

TCE was then condensed as clean TCE and piped back into the

degreaser.       Former employees testified that they also used TCE to

clean oil off their hands, to wipe oil from the equipment, and to

clean oil from the floor.           The plant utilized a drain system to

collect any liquid that spilled onto the floor.             The drains emptied

into four or five dry wells at the west end of the property.

     In the late 1960's there was a large, accidental spill of TCE

at the plant.         An employee who witnessed the spill stated that an

automatic float in a still connected to the degreaser stuck and

caused TCE to overflow into a floor drain.2

     1
      In 1976, SSP Industries leased the plant from McQuay.                SSP
later purchased the plant in 1979.
          2
        Appellees dispute whether the spill actually occurred;
however, for purposes of this opinion, we assume arguendo that it

                                        2
       Three years after merging with McQuay, SnyderGeneral received

notice from Stanley-Bostitch, Inc. which operated a plant next door

to and down gradient from the McQuay plant, that the California

Regional Water Quality Control Board had ordered Stanley-Bostitch

to clean up the contaminated groundwater.        The notice also alleged

that the primary source of contamination was under and in the

vicinity of the former plant site.

       Two months later, the California Department of Health Services

sent SnyderGeneral a letter requesting that SnyderGeneral provide

information     concerning       McQuay’s   activities      at     the   plant.

SnyderGeneral    received    a    similar   letter   from    the    California

Regional Water Quality Control Board.

       As a result, SnyderGeneral notified both its insurers, Great

American and U.S. Fire, of the claims related to the former plant

and to advise them of an opportunity to settle with Stanley-

Bostitch.     SnyderGeneral stated that the pollution resulted from

the large TCE spill.    Both policies contain a pollution exclusion

clause which excluded property damage or liability

         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.

U.S. Fire never responded to SnyderGeneral’s letter nor did it

conduct an investigation of SnyderGeneral’s claims. Great American

did.

                                       3
requested     additional   information   about   the   claim   which

SnyderGeneral provided; however, Great American sent no further

responses and never investigated. SnyderGeneral sued asserting

breach of contract and the duty of good faith and fair dealing and

violation of the Texas Insurance Code.3     Great American and U.S.

Fire successfully moved to dismiss on summary judgment all of

SnyderGeneral’s claims.4    SnyderGeneral appeals.

                                  II

A. STANDARD OF REVIEW

        We review grants of summary judgment de novo.      Rizzo v.

Children’s World Learning Ctr., Inc., 84 F.3d 758, 761 (5th Cir.

1996); Brock v. Charter, 84 F.3d 726, 727 (5th Cir. 1996).     Under

Rule 56(c), a court will grant summary judgment when the pleadings

and evidence show that there is no genuine issue as to any material

fact.

B. ANALYSIS

        Because this is a diversity case, the district court had to

determine which state law applies to each insurer.      The parties

agreed that Texas law applies to U.S. Fire, and the district court

found that Minnesota law applies to Great American.    SnyderGeneral

does not dispute this finding; therefore, we apply the laws of

Texas and Minnesota to U.S. Fire and Great American, respectively.

    3
     Because we hold that the pollution exclusion clause precludes
coverage of the large TCE spill, we do not address the other
claims.
    4
     SnyderGeneral originally sued eleven of its insurers, but it
settled with all except Great American and U.S. Fire.

                                  4
      As the district court noted, the threshold issue is whether

the large TCE spill comes within the “sudden and accidental”

exception to the pollution exclusion clause.

1. Great American

      Great American argues that whether the large spill occurred or

not is unimportant under Minnesota law.                  Rather, to determine

whether a discharge was sudden and accidental, the issue is how the

contaminants entered the groundwater.               We agree.5

      In Board of Regents of the Univ. of Minn. v. Royal Ins. Co. of

America, 517 N.W.2d 888 (Minn. 1994), the appellant had installed

in a building fireproofing material that had released asbestos

fibers.        The appellant had sued its insurance companies demanding

the cost of removing the asbestos from the building.                  Id.    The

appellant argued that the release of asbestos fibers over a period

of twenty years was “sudden” because the release was unexpected.

Id.   at       891.   In   determining   how   to    interpret   “sudden”,   the

Minnesota Supreme Court noted that “sudden” and “accidental” were

used together; therefore, if “sudden” meant “unexpected” then the

term “accidental” would be redundant.                  The word must have a

temporal element; therefore, a “sudden” release could not be

           5
        This is not to suggest that the relevant discharge or
“release point” always coincides with the “occurrence” of actual
damage or injury. See, e.g., Hartford Accident & Indem. Co. v.
U.S. Fidelity & Guar. Co., 962 F.2d 1484, 1491 (10th Cir. 1992)
(“We have found almost universal agreement among federal courts
applying the pollution exclusion that it is the discharge which
must be sudden and accidental to qualify for coverage, not the
pollution damage.”). As we discuss further below, however, under
the unique facts of this case, the two events do coincide.

                                         5
gradual.    Id. at 892.     The Court also noted that “sudden and

accidental”   modified    “discharge”.   As   a   result   “sudden   and

accidental” referred to the escape of the polluting waste.       Id.

       SnyderGeneral contends that the degreaser tank contained the

TCE so the relevant escape is the spill.          SnyderGeneral relies

heavily on SCSC v. Allied Mutual Ins. Co., 515 N.W.2d 588 (Minn.

Ct. App. 1994), aff’d in part, rev’d in part, 533 N.W.2d 603 (Minn.

1995), to bolster its argument. There, a wholesale distributor of

perc, a dry cleaning chemical, was ordered to clean up perc

contaminated ground water.     The distributor then wrote to its two

insurance companies seeking coverage. The distributor claimed that

it fell outside of the pollution exclusion clause because the

pollution was the result of one large spill.       A driver of one of

the perc delivery trucks was filling the tank when it overfilled

and sprayed into his eyes.       While the driver was helped to an

emergency shower, perc continued to flow out for two or three

minutes.    The perc ran out of the facility and into the parking

lot.    Soon thereafter, there was a heavy rain shower which washed

the perc into the ground water.     As here, the distributor brought

suit to force the insurance companies to pay the clean up costs.

The case went to trial and the jury found that the spill was sudden

and accidental.    Id. at 592-94.

       The insurers, relying on several landfill cases, argued that

the release could not have been sudden as a matter of law because

the relevant release occurred when the pollutants leaked out of the

soil and into the groundwater. The appeals court disagreed stating

                                    6
a court determines suddenness by the pollutant’s release from a

state of containment not by the time that elapses before the

pollution was discovered.     The court distinguished the landfill

cases stating that landfills were meant to hold pollutants in

suspension above the groundwater; the distributor, however, made no

attempt to store perc in the soil above groundwater.

       SnyderGeneral argues that here it, too, made no effort to

store TCE in soil above the groundwater.       Like SCSC, the relevant

escape is from the storage tank.       Moreover, the speed of migration

of the TCE is irrelevant because the contaminant is not emerging

from a state of confinement since dry wells were not meant to

contain.   We find SnyderGeneral’s reliance upon SCSC unpersuasive

for two reasons.

       First, Board of Regents is the most recent statement of the

law.    Moreover, because it is a Minnesota Supreme Court case, it

controls our reasoning.     Therefore, to the extent that Board of

Regents contradicts SCSC, we must reject SCSC.           The Minnesota

Supreme Court states that “discharge” means the escape of waste

from a particular place.    Board of Regents, 517 N.W.2d at 892.    We

understand this to mean that courts are to focus on the point at

which the polluting waste escapes from its intended place of

containment. Here, the record shows that SnyderGeneral intended to

contain TCE in the dry wells because the dry wells were designed to

allow the TCE to make its way from the plant floor to the dry

wells--the ultimate place of containment; therefore, we hold that

the relevant release is from the dry wells.

                                   7
       Second, SCSC is, in any event, distinguishable.                In SCSC, it

was    the   rainstorm       that   allowed   the    perc   to   get    into     the

groundwater, and the rainstorm was something the distributor had no

control over.        Here,    SnyderGeneral had control over how the TCE

escaped.     As the diagram of the plant shows, the purpose of the

floor drain system was to catch any spills and drain them into the

dry wells which then allowed the TCE into the seepage pit.                       The

record also reveals that immediately after the large spill of TCE

from the degreaser tank, SnyderGeneral knew about the spill and

could have taken steps to clean it up from the floor or by pumping

or    digging   it    from    the   dry   wells.      Its   failure    to   do   so

demonstrates that, even if the tank was the initial place of

containment for large-volume TCE, the dry wells became the ultimate

intended place of containment.            Thus, there is no genuine issue of

material fact concerning whether SnyderGeneral intended to contain

the pollutants in the dry wells.

       The remaining question is whether the release was “sudden and

accidental”. Under the policy terms, the discharge of TCE from the

dry wells must have been both sudden and accidental to qualify for

coverage.       SnyderGeneral cannot claim that the discharge was

accidental.     Under Minnesota law, “accidental” means “unexpected”.

Board of Regents, 517 N.W.2d at 892.               While the overflow of TCE

from the tank might well have been unexpected, the overflow is

irrelevant. As explained above, the relevant discharge is from the

dry wells so we examine whether that discharge was accidental. The

record shows that the purpose of the dry wells was to leach waste

                                          8
liquid into the surrounding environment.         SnyderGeneral cannot

characterize this discharge as unexpected.      The drain system acted

exactly as it was designed to do.       Because the discharge was not

accidental,    we   need   not   determine   whether   it   was   sudden.

Therefore, we hold that the district court did not err in granting

summary judgment in favor of Great American.

2. U.S. Fire

     To determine what the relevant release is under Texas law, we

look to Union Pacific Resources Co. v. Aetna Casualty & Surety Co.,

894 S.W.2d 401 (Tex. App.--Fort Worth 1994, writ denied).          There,

the Texas Court of Appeals held in a landfill case that the

subsequent escape of pollutants from the disposal site was the

critical inquiry for determining whether the pollution exclusion

clause precluded coverage.       Id. at 404.6   The record shows that

purpose of the dry wells was to drain out the liquid from the floor

drains.   Therefore, we hold that under Texas law, the relevant

discharge is from the dry wells.        Moreover, since the dry wells

were designed to leach out liquid, SnyderGeneral expected the waste

to discharge into surrounding environment. Thus, the discharge was

not accidental.     Again, we hold that the district court did not err

in granting summary judgment in favor of U.S. Fire.

    6
     Union Pacific, like the instant case, involved circumstances
in which the relevant discharge under the pollution exclusion
clause coincided with the occurrence triggering coverage under the
policy. See id. at 404 (“We hold where material has been deposited
in a place which was believed to serve as a landfill for such
waste, the polluting ‘occurrence’ is the ‘discharge, dispersal,
release, or escape’ . . . of toxic material into the
environment.”).

                                    9
                           CONCLUSION

     For the above reasons, we AFFIRM the district court’s grant of

summary judgment.

                                10