Court Opinion

ID: 3021563
Source: CourtListenerOpinion
Date Created: 2015-10-13 22:25:01.649618+00
Date Added: 2024-06-11T11:47:29.075207
License: Public Domain

United States Court of Appeals
                            FOR THE EIGHTH CIRCUIT

                 ____________

                 No. 97-1480
                 No. 97-1599
                 ____________

Liberty Mutual Insurance Company,       *
                                        *
           Appellee/Cross-Appellant,    *
                                        *
           v.                           *
                                        *
FAG Bearings Corporation,               *
                                        *
           Appellant/Cross-Appellee.    *

                 ____________                Appeals from the United
                                             States District Court for
                 No. 97-2844                 the Western District of
                 ____________                Missouri.

Liberty Mutual Insurance Company,      *
                                       *
           Appellee,                   *
                                       *
           v.                          *
                                       *
FAG Bearings Corporation,              *
                                       *
           Appellant.                  *
                                 ____________

                          Submitted: February 11, 1998
                              Filed: September 8, 1998

                                       -1-
                                   ____________

Before McMILLIAN and HANSEN, Circuit Judges, and DAVIS,* District Judge.
                          ____________

DAVIS, District Judge

        Appellee/Cross-Appellant Liberty Mutual Insurance Company (“Liberty”)
filed this declaratory judgment action to determine its contractual obligations to
defend and indemnify Appellant/Cross-Appellee FAG Bearings Corp. (“FAG”) for
damages arising out of an alleged environmental contamination and cleanup. The
district court** granted summary judgment to Liberty in part, ordering that there is
no duty of indemnification; granted summary judgment to FAG in part, finding that
Liberty had a duty to defend FAG until the issue of indemnification was resolved;
and denied Liberty a right to reimbursement of defense costs incurred to date. The
court further denied FAG’s subsequent Fed. R. Civ. P. 60(b) motion, based on
newly discovered evidence.

       Both parties appeal portions of the district court’s order as follows: FAG
appeals (1) the grant of summary judgment to Liberty on its obligation to indemnify
FAG; (2) the denial of FAG’s cross-motion for partial summary judgment on
Liberty’s continuing defense obligations; and (3) the denial of FAG’s Fed. R. Civ.
Pro. 60(b) motion. Liberty, on the other hand, cross-appeals the district court’s
order to the extent that it concluded that Liberty had a duty to defend FAG and
denied reimbursement to Liberty of defense costs paid. For reasons discussed
below, we affirm.

      *
       The HONORABLE MICHAEL J. DAVIS, United States District Judge for
the District of Minnesota, sitting by designation.
      **
       The Honorable Joseph E. Stevens, Jr., United States District Judge for the
Western District of Missouri.
                                         -2-
                                  I. BACKGROUND

       FAG is named as a defendant in four lawsuits brought by individuals who
reside near FAG’s plant in Joplin, Missouri. The plaintiffs in those suits allege that
FAG is responsible for contaminating their water supply with the solvent
trichloroethylene (“TCE”). Specifically, they allege that the contamination has
caused their property values to decrease, has affected their use and enjoyment of
property, and has caused or may cause bodily injury. Only one of those actions,
collectively referred to as the Moretz action1, is currently before this Court. FAG
has agreed to a settlement in this action, but the three others are still pending against
FAG.

       FAG has operated a ball bearing parts manufacturing plant in Joplin, Missouri
since 1970. In about 1972 or 1973, the plant installed a degreasing system which
sprayed newly manufactured balls with TCE to remove grease and waste oil from the
balls as they moved down a conveyor belt. Because TCE evaporates quickly, the
system created a significant amount of TCE vapor. To prevent escape of the vapor,
FAG used a TCE reclamation device referred to as the vapor recovery system, which
separated water, oil and other substances from the TCE so that pure TCE could be
reused.

       The system was designed to be a contained, closed-loop process, from which
no TCE vapor could escape into the surrounding environment. However, due to
recurring mechanical and electrical malfunctions, significant amounts of TCE vapor
escaped from the system. A common malfunction caused a vent in the machinery to
be left open, allowing TCE vapor to escape into the atmosphere. Employees could
see the TCE vapor leak into the atmosphere and the system required repair every

      1
      The Moretz action was originally captioned as Thomas, et al. v. FAG
Bearings Corp..
                                           -3-
one or two weeks. As early as 1973, FAG was aware that large amounts of TCE
were escaping from the system. In 1973 alone, FAG estimated that 40 tons of TCE
vapor escaped through the vent as a result of malfunctions in the vapor recovery
system, creating the need to replace large quantities of TCE in the system. Yet,
FAG continued using TCE until 1981 or 1982.

      Beginning in 1982, Liberty insured FAG through a series of Comprehensive
General Liability and Excess Liability insurance policies. The policies issued in
1982, 1983 and 1984 generally provide as follows:

      [Liberty] shall have the right and duty to defend any suit against the
      insured seeking damages on account of such bodily injury or property
      damage, even if any of the allegations of the suit are groundless, false,
      or fraudulent.

(Joint App. 158). The policies limited FAG’s coverage with a pollution-exclusion
clause as follows:

      This policy does not apply to bodily 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.

Id. With respect to covered claims of “personal injury or advertising injury,” the
policies similarly obligate Liberty as follows:

      [to] pay on behalf of the insured all sums which the insured shall
      become legally obligated to pay as damages because of personal injury
      or advertising injury to which this insurance applies...

                                         -4-
(Joint App. 163). The policies define “personal injury” as follows:

      Injury arising out of one or more of the following offenses committed
      during the policy period... (2) wrongful entry or eviction or other
      invasion of the right of private occupancy.

(Joint App. 164).

       The claims in the four actions against FAG include violations of the
Comprehensive Environmental Cleanup Recovery Act (“CERCLA”) and the
Resource Conservation Recovery Act (“RECRA”), as well as claims for trespass,
nuisance, negligence and strict liability. In April 1995, Liberty moved for summary
judgment on its duty to defend and indemnify FAG. FAG filed a cross-motion for
summary judgment on Liberty’s duty to defend. The district court granted summary
judgment to Liberty in part, finding that Liberty was not obligated to indemnify FAG
due to application of the policy’s pollution exclusion clause. The district court
further granted summary judgment in part to FAG, finding that Liberty had a duty to
defend FAG until the issue of indemnification was resolved and subsequently
denying Liberty a right to reimbursement of defense costs incurred to date. The
district court also denied FAG’s Fed. R. Civ. P. 60(b) motion, based on newly
discovered evidence.

                                 II. DISCUSSION

      This court reviews a grant of summary judgment de novo. Thus, summary
judgment is appropriate when the evidence, viewed in the light most favorable to the
nonmoving party, demonstrates that there is no genuine issue of material fact, and the
moving party is entitled to judgment as a matter of law. Hill v. St. Louis University,
123 F.3d 1114, 1118-19 (8th Cir. 1997); Duffy v. Wolle, 123 F.3d 1026, 1033 (8th
Cir. 1997).

                                         -5-
A. Liberty’s duty to indemnify FAG

       The district court held that Liberty was not obligated to indemnify FAG, on
grounds that the pollution from the vapor recovery system was not “sudden and
accidental” and therefore the exception to the pollution exclusion clause did not
apply. Rather, the court concluded that because FAG repaired the system frequently
yet did not take the necessary steps to prevent the system from malfunctioning,
FAG’s actions in regards to the pollution were deliberate and the releases were
foreseeable and expected. (Appellant’s App. at 7A-11A).

       First, FAG disputes factual findings by the district court that the only releases
that could have caused the TCE pollution were the airborne releases from the vapor
recovery system and that such releases were not “sudden and accidental”. FAG
argues that there were numerous allegations of other sources of TCE pollution which
could constitute “sudden and accidental” sources of pollution if proven. Liberty
counters that witnesses below identified the vent leaks as the only source of pollution
and that the possibility of other sources were raised as mere allegations without any
evidentiary support.

       On a motion for summary judgment, the nonmoving party cannot rest on mere
allegations and instead must set forth specific facts showing that there is a genuine
issue for trial. Webb v. Lawrence County, 144 F.3d 1131, 1135 (8th Cir. 1998).
Furthermore, a district court’s findings of fact are reviewed under a “clearly
erroneous” standard. Fed. R. Civ. Pro. 52(a). Such findings must be upheld if they
“fall within a broad range of permissible conclusions.” Federal Deposit Ins. Corp. v.
Lee, 988 F.2d 838, 841 (8th Cir. 1993) (quoting Cooter & Gell v. Hartmarx Corp.,
496 U.S. 384, 400 (1990)). Contrary to FAG’s assertion, requiring FAG to put forth
facts to support its allegations is not an unfair shifting of any burden on FAG.
Rather, that is the standard applied against every non-movant in a summary

                                          -6-
judgment motion. FAG has failed to set forth any facts to support its allegations that
there were other releases of TCE pollution that could have caused the contamination
at issue and were “sudden and accidental”. Therefore, we conclude that it was not
clearly erroneous for the district court to conclude that the only source of TCE
pollution were the airborne releases from the vapor recovery system.

       FAG next challenges the district court’s interpretation of the meaning of the
terms “sudden and accidental.” Specifically, FAG argues that such terms can be
interpreted to mean “unexpected” and “unintentional”. Thus, FAG contends that
because each occurrence of malfunction in the vapor recovery system was
unexpected and the release of TCE was unintended, the TCE pollution was “sudden
and accidental.”

       In determining that the TCE pollution was not sudden and accidental, the
district court relied on Aetna Cas. & Sur. Co. v. General Dynamics Corp., 968 F.2d
707 (8th Cir. 1992) for interpretation of those terms. In that case, an insurer brought
an action against its insured with respect to underlying claims against the insured
arising from environmental contamination. At the district court level, the term
“sudden” in the “sudden and accidental” exception to the insurer’s pollution
exclusion was held to be ambiguous, creating a material issue as to whether the
insured’s regular hazardous waste disposal practices fit within the exception.

       On appeal, this Court rejected the district court’s holding that a “sudden”
discharge can include events occurring over a long period of time, as long as the
resulting damage is unexpected. Rather, this Court held that “sudden and
accidental” is unambiguous under Missouri law and that the insured’s frequent and
knowing polluting activities were neither sudden nor accidental. Consequently, the
pollution exclusion applied, and there was no duty to indemnify. The Court in
General Dynamics stated that Missouri law requires all terms of an insurance
contract to be given meaning and since accidental includes the unexpected, the term

                                          -7-
sudden cannot be given a contradictory meaning that would render the term
accidental meaningless. In other words, the term “sudden” must include a temporal
element such that it is abrupt, immediate and unexpected.

       We reject FAG’s argument that General Dynamics was an incorrect prediction
of Missouri law. Missouri courts have not provided any guidance as to how the
terms “sudden and accidental” should be interpreted. However, numerous circuits
have held that such terms are unambiguous and have interpreted those terms in a
manner similar to the meaning attributed in General Dynamics - - namely, that the
term “sudden”connotes an unexpected event that does not occur continuously over a
significant period of time. Quaker State Minit-Lube, Inc. v. Fireman’s Fun Ins. Co.,
52 F.3d 1522, 1529-30 (10th Cir. 1995); Ray Indus., Inc. v. Liberty Mutual Ins. Co.,
974 F.2d 754, 768 (6th Cir. 1992); Lumbermens Mut. Casualty Co. v. Belleville
Indus., 938 F.2d 1423, 1427 (1st Cir. 1991).

       Under the interpretation provided in General Dynamics, we affirm the district
court’s ruling that the TCE releases were not “sudden and accidental.” Although,
FAG may not have intended that such pollution occur, the district court correctly
concluded that FAG did not do enough to stop the continuous recurrence of
malfunction so as to prevent future releases of TCE. Because FAG was aware of the
recurring malfunction, we agree that the TCE releases were not accidental.

       FAG cites numerous cases which allegedly involve similar factual scenarios
and where summary judgment was denied. See, Cessna Aircraft Co. v. Hartford
Acc. & Indem. Co., 900 F. Supp. 1489 (D.Kan. 1995); Employers Insurance of
Wausau v. Duplan Corp., 899 F. Supp. 1112 (S.D.N.Y. 1995); Nashua Corp. v. First
State Insurance Co., 648 N.E.2d 1272 (Mass. 1995). Upon review of those cases,
we conclude that those cases are distinguishable because unlike here, a genuine issue
of material fact was presented as to whether the pollution was “sudden and
accidental”. In this case, there was a significant amount of evidence presented that

                                         -8-
the vapor recovery system frequently malfunctioned and released large amounts of
TCE over a long period of time. As discussed above, FAG failed to put forward
sufficient evidence to create a genuine issue of material fact as to whether such
releases were “sudden and accidental”. Consequently, we conclude that summary
judgment on that matter was appropriate.

       Finally, FAG argues that the district court erred by applying the pollution
exclusion clause to its claims which were allegedly personal injury claims. Pursuant
to the terms of the policies at issue, Liberty is obligated to pay all sums that FAG is
obligated to pay as damages because of personal injury. (Joint App. 163).
However, the pollution exclusion clause states that the policy does not apply to
bodily injury or property damage caused by pollution. (Joint App. 158). The
underlying claims against FAG are primarily based on damage to property. Yet, the
underlying claims also include claims for injury resulting from contaminated drinking
water. Although such claims can be characterized as personal injury claims, FAG
overlooks the fact that they are also “bodily injury” claims that are specifically
excluded from coverage by the pollution exclusion clause. Therefore, we conclude
that the district court correctly applied the pollution exclusion clause to the
underlying claims in this case.

B. Liberty’s duty to defend FAG

       In regards to Liberty’s duty to defend FAG, the district court held that
although Liberty had an initial duty to defend FAG, that duty expired upon the
determination that the claims against FAG are excluded from coverage by operation
of the pollution exclusion clause in the underlying policies. As an initial matter,
FAG argues that pursuant to the district court’s order, Liberty has an obligation to
defend FAG in other actions brought against FAG and in the investigation by the
Missouri Department of Natural Resources. However, the district court rejected
such argument by FAG when FAG sought a motion to alter and amend judgment for

                                          -9-
the purpose of confirming Liberty’s duty to defend. Contrary to FAG’s assertion,
the district court’s determination was limited to Liberty’s duty to defend in the
Moretz action alone.

       On cross-appeal to this Court, Liberty argues that it had no initial duty to
defend FAG and that it is entitled to reimbursement of all defense costs paid. Under
Missouri law, an insurer owes no duty to defend when the insured alleges facts not
within the coverage of the insurance policy. However, the duty to defend is
triggered if there are facts that could potentially bring the underlying claim within
coverage. Furthermore, any uncertainty as to the policy’s coverage should be
decided in favor of the insured. Reliance Insurance Co. v. Shenandoah South, Inc.,
81 F.3d 789, 791-92 (8th Cir. 1996).

       The policies at issue provide that Liberty has the duty to defend any suit
against FAG seeking damages caused by bodily injury or property damage. We
agree that on their face, the underlying complaints in this action allege claims for
bodily injury and property damage. Although the parties disputed whether the claims
were excluded from coverage by operation of the pollution exclusion clause, any
uncertainty as to such coverage should be resolved in FAG’s favor. Therefore,
Liberty remained obligated to defend FAG so long as there remained any question as
to whether the underlying claims were covered by the policies. Upon determination
that the pollution was not “sudden and accidental” and that the claims against FAG
were therefore excluded from coverage, the district court properly concluded that
Liberty’s duty to defend FAG in this action expired. Because we conclude that
Liberty had a duty to defend FAG until such determination was made, we reject
Liberty’s argument that it is entitled to reimbursement of defense costs.

C. FAG’s motion pursuant to Fed. R. Civ. Pro. 60(b)

      FAG further appeals the district court’s denial of its motion pursuant to Fed.

                                         -10-
R. Civ. Pro. 60(b) on the basis of newly discovered evidence. To prevail on a Rule
60(b) motion based on newly discovered evidence, the moving party must show: (1)
that the evidence was discovered after trial; (2) that the party exercised due
diligence to discover the evidence before the end of trial; (3) that the evidence is
material and not merely cumulative or impeaching; and (4) that a new trial
considering the evidence would probably produce a different result. McCormack v.
Citibank, 100 F.3d 532, 542 (8th Cir. 1996)

     A Rule 60(b) motion is committed to the sound discretion of the district court,
and we review that determination only for an abuse of discretion. Id.; Callanan v.
Runyon, 75 F.3d 1293, 1296 (8th Cir. 1996). FAG sought such a motion on the basis
that it discovered new evidence suggesting potential sources of TCE contamination
other than the releases from the vapor recovery system. FAG argued that because
the summary judgment order was based on the determination that the airborne
releases were the only source of TCE pollution, the new evidence could fall within
the “sudden and accidental” exception to the pollution exclusion clause. The district
court denied FAG’s motion, concluding that FAG did not exercise due diligence to
discover and report such evidence, that the new evidence was cumulative, and that
such evidence would not have produced a different result.

       We conclude that FAG has failed to show that it exercised due diligence to
discover the new evidence before the summary judgment order was issued. On
appeal to this Court, FAG merely asserts that such new evidence was discovered in
another action against FAG and was not presented to FAG until after the district
court’s order was issued. However, FAG fails to show why such evidence could not
have been discovered earlier with due diligence. Therefore, we conclude that the
district court’s denial of FAG’s Rule 60(b) motion was not an abuse of discretion.

                                        -11-
A true copy.

        Attest:

               CLERK, U.S. COURT OF APPEALS, EIGHTH CIRCUIT.

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