Lindsay Mfg. Co. v. Hartford Acc. & Indem. Co., s. 96-1282

• Decision Date: 18 August 1997
• Docket Number: Nos. 96-1282,96-1440,s. 96-1282
• Citation: 118 F.3d 1263
• Parties: , 27 Envtl. L. Rep. 21,535 LINDSAY MANUFACTURING COMPANY, Appellant, v. HARTFORD ACCIDENT & INDEMNITY CO.; Hartford Insurance Company, of Illinois, Appellees, DeKalb Energy Company, a corporation, Defendant. LINDSAY MANUFACTURING COMPANY, Appellee, v. HARTFORD ACCIDENT & INDEMNITY CO.; Hartford Insurance Company, of Illinois, Appellants, DeKalb Energy Company, a corporation, Defendant.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1263

118 F.3d 1263

45 ERC 1020, 27 Envtl. L. Rep. 21,535

LINDSAY MANUFACTURING COMPANY, Appellant, v. HARTFORD ACCIDENT & INDEMNITY CO.; Hartford Insurance

Company, of Illinois, Appellees,

DeKalb Energy Company, a corporation, Defendant.

LINDSAY MANUFACTURING COMPANY, Appellee, v. HARTFORD ACCIDENT & INDEMNITY CO.; Hartford Insurance

Company, of Illinois, Appellants,

DeKalb Energy Company, a corporation, Defendant.

Nos. 96-1282, 96-1440.

United States Court of Appeals Eighth Circuit.

Submitted Dec. 11, 1996.

Decided July 8, 1997.

Rehearing Denied Aug. 18, 1997.

William Jay Riley, Omaha, NE, argued (William J. Brennan and Gerald L. Friedrichsen, on the brief), for Lindsay Mfg. Co.

William M. Lamson, Jr., Omaha, NE, argued (Lyman L. Larsen, Robert S. Soderstrom and D.J. Sartorio, on the brief), for Hartford Acc. & Indem. Co.

Before McMILLIAN, JOHN R. GIBSON, and MAGILL, ¹ Circuit Judges.

MAGILL, Circuit Judge.

Lindsay Manufacturing Company (Lindsay) appeals the district court's grant of summary judgment to Hartford Accident & Indemnity Company and the Hartford Insurance Company of Illinois (collectively, Hartford) on Lindsay's claim and Hartford's restitution counterclaim arising out of insurance coverage for environmental cleanup costs. Lindsay argues that the district court erred in holding that, under Nebraska law, the "as damages" language in a comprehensive general liability (CGL) insurance policy does not include environmental response costs. We reverse and remand.

I.

Lindsay is a Delaware corporation with its principal place of business in Lindsay, Nebraska. Currently a publicly owned corporation, until October 12, 1988, Lindsay was a wholly-owned subsidiary of DeKalb Ag Research, Inc., now known as DeKalb Energy Company (DEKALB). DEKALB is a Delaware corporation with its principal place of business in DeKalb, Illinois. Hartford Accident & Indemnity Company is a Connecticut corporation with its principal place of business in Connecticut, whereas, Hartford Insurance Company of Illinois is an Illinois corporation with its principal place of business in Illinois.

Hartford issued two standard CGL insurance policies to DEKALB. Hartford Accident & Indemnity Company issued the primary policy, No. 83 CLR P10722E, and Hartford Insurance Company of Illinois issued an umbrella liability policy, No. 83 HU 603857, which extended coverage beyond the primary policy. The CGL policies obligate Hartford to pay all sums which the insured shall become obligated to pay "as damages" caused by an occurrence. The policies also contained a "pollution exclusion." The primary policy excluded from coverage payments that are "damages," but are not the result of environmental contamination that was "sudden or accidental." Similarly, the umbrella policy only covered contamination that was "sudden and accidental." The policies covered the period from January 1, 1982, to January 1, 1983. As a wholly-owned subsidiary of DEKALB, Lindsay was a named insured under both policies.

Lindsay's insurance claims arise out of environmental contamination emanating from its irrigation equipment manufacturing plant in Lindsay, Nebraska. Before being galvanized (zinc coated), the irrigation equipment manufactured at Lindsay's plant was cleaned or "pickled" using a bath of sulfuric acid solution known as "pickle liquor." When the pickle liquor is no longer effective, it is referred to as "spent pickle liquor." From 1972 through 1982, Lindsay disposed of its spent pickle liquor by pumping it into an open, unlined, clay-bottomed earthen waste pit.

Containing sulfuric acid, lead, chromium, and zinc, spent pickle liquor is a hazardous waste. In May 1980, the United States Environmental Protection Agency (EPA) notified Lindsay that it was a potential handler of hazardous waste and that Lindsay was therefore subject to EPA rules. In June 1980, Lindsay installed a monitoring well and samples were taken from the well in August 1980, December 1981, and June 1982. Although no contamination was detected, Lindsay's environmental consultant, Terry Boham, told Lindsay that the well may not have been properly located to detect contamination. In December 1982, four additional monitoring wells were installed. On December 16, 1982, contamination of the aquifer was detected in one of the new wells. Sampling of the wells in January 1983 showed contamination in three of the four wells. Lindsay reported these findings to the Nebraska Department of Environmental Control (NDEC).

In the face of regulatory pressure, Lindsay entered into several stipulation agreements with NDEC. In the first of these agreements, dated April 19, 1983, Lindsay agreed to: (1) assess the extent of Lindsay's spent pickle liquor contamination of the aquifer; (2) propose a plan for remedial action and for closure of the spent pickle liquor waste pit; (3) complete the remedial action; and (4) construct a wastewater treatment facility. Lindsay submitted to NDEC a Resource Conservation and Recovery Act of 1973 § 7003 (RCRA) (also known as the Solid Waste Disposal Act), Pub.L. No. 89-272, 90 Stat. 2826 (1976) (codified at 42 U.S.C. § 6973), closure plan for the waste pit and a remedial action plan for cleaning up the contaminated groundwater. The plans were approved by NDEC on September 1, 1983, and the spent pickle liquor waste pit was certified closed on October 27, 1983.

Lindsay's second amended stipulation, dated March 7, 1984, required Lindsay to continue monthly monitoring of the aquifer and to continue to perform remedial action as necessary to restore the aquifer to background conditions as determined by NDEC. Both the first and second amended stipulations were incorporated into a January 5, 1989 Stipulation and Agreement. This agreement acknowledged the occurrence of contamination as defined by the Comprehensive Environmental Response, Compensation and Liability Act (CERCLA), codified at 42 U.S.C. §§ 9601-9675, and contained Lindsay's commitment to perform remedial work in compliance with CERCLA, the Superfund Amendments and Reauthorization Act (SARA), Pub.L. No. 99-499, 100 Stat. 1613 (1986) (codified at 42 U.S.C. §§ 9601-9675), and Nebraska Environmental Protection Act (NEPA), Neb.Rev.Stat. §§ 81-1501 to 15,188.

Lindsay retained an independent engineering firm, Hoskins-Western-Sondergger Inc. (HWS), to investigate and develop a plan for cleaning the aquifer. HWS concluded that the contamination occurred when the monitoring wells were drilled in December 1982.

Although Lindsay began investigating the contamination in 1980 and entered into the first stipulation agreement with NDEC in 1983, Lindsay did not notify Hartford of the contamination until October 4, 1985. Lindsay claimed that the expenses incurred in the cleanup of the aquifer constituted damages under its policies with Hartford.

Hartford responded by issuing a reservation of rights letter which specifically noted only the primary policy. Hartford then commenced an investigation of the claim. Based on the balance of the evidence, Hartford recognized the claim, although Hartford did consider the theory that this was a case of cumulative contamination which would not be covered by the policy under the language of the pollution exclusion.

As part of the adjustment process, Hartford attempted to negotiate for a lump sum payment in exchange for a full and complete release. Lindsay refused Hartford's offers, however, as they represented substantially less recovery than the expenses Lindsay had incurred in the cleanup. Subsequently, Hartford and Lindsay agreed that Hartford would pay clean up costs upon submission and auditing of the billing records. The parties also agreed to arbitrate a dispute over coverage of hauling expenses and interest. Hartford then began to reimburse Lindsay for the costs of cleaning the aquifer.

In 1986, Hartford prosecuted a subrogation action in Lindsay's name against the engineering firm that designed the monitoring wells, the contractor that built the monitoring wells, and the subcontractor who drilled the monitoring wells. In the subrogation action, which was brought to recover the cost of cleaning the aquifer, Hartford alleged that the aquifer was contaminated as a result of the defendant's negligent drilling of the monitoring wells. The action was tried to a jury which found for the defendants.

In 1988, Hartford employed an independent engineering firm, R.E. Rimkus & Associates of Texas (Rimkus), to inspect the Lindsay site. Through discussions with Rimkus, Hartford learned that a NDEC government geologist, Robert Tobin, prepared a report disagreeing with HWS's, Lindsay's engineering firm, conclusion regarding the cause of the contamination. Tobin had concluded that the contamination was caused by seepage rather than the drilling of the monitoring wells. Eventually, Rimkus's written report also concluded that significant quantities of spent pickle liquor waste had migrated into the aquifer before the drilling of the monitoring wells. Nevertheless, Hartford continued to make payments.

Over time, however, Hartford also concluded that the cause of the spent pickle liquor contamination of the aquifer was not a sudden and accidental occurrence, but rather gradual seepage. Because Hartford contended that such a gradual seepage was not covered by its policy, Hartford stopped making payments. Lindsay then brought an action in state court seeking recovery from Hartford based on: (1) Hartford's breach of the CGL policies; (2) breach of a separate agreement to reimburse Lindsay for all expenses resulting from the NDEC/EPA cleanup and (3) an equitable estoppel theory which required Hartford to continue making payments. Hartford removed the case to the United States District Court for the District of Nebraska on the basis of diversity jurisdiction. In the district court, Hartford denied liability and counterclaimed for the payments Hartford had already made to Lindsay. On February 3, 1995,...