131 F.3d 625 (7th Cir. 1997), 96-2778, Cincinnati Ins. Co. v. Flanders Elec. Motor Service, Inc.

Docket Nº:96-2778.
Citation:131 F.3d 625
Party Name:CINCINNATI INSURANCE CO., Plaintiff-Appellee, v. FLANDERS ELECTRIC MOTOR SERVICE, INC., Defendant-Appellant.
Case Date:December 04, 1997
Court:United States Courts of Appeals, Court of Appeals for the Seventh Circuit
 
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Page 625

131 F.3d 625 (7th Cir. 1997)

CINCINNATI INSURANCE CO., Plaintiff-Appellee,

v.

FLANDERS ELECTRIC MOTOR SERVICE, INC., Defendant-Appellant.

No. 96-2778.

United States Court of Appeals, Seventh Circuit

December 4, 1997

Argued March 26, 1997.

Page 626

Karl L. Mulvaney (argued), Martha S. Hollingsworth, Julia Elizabeth Dimick, Bingham, Summers, Welsh & Spilman, Indianapolis, IN, for Plaintiff-Appellee.

Bruce D. Ryder (argued), Joseph G. Nassif, Linda W. Tape, St. Louis, MO, for Defendant-Appellant.

Before PELL, KANNE and DIANE P. WOOD, Circuit Judges.

KANNE, Circuit Judge.

Flanders Motor Service, Inc. sells and repairs motors and other equipment at its facility in Evansville, Indiana. During a seventeen year period from 1971 to 1988, Flanders sent several electrical transformers in need of repair to the Missouri Electric Works ("MEW") in Cape Girardeau, Missouri. On at least two occasions those transformers may have contained fluids contaminated with PCBs. Sometime in the mid 1980's an investigation revealed substantial PCB contamination of the soil at the MEW site. The Environmental Protection Agency ("EPA") concluded that leaks from oil drums and transformers over a twenty year period were the source of the contamination. As a result, the EPA notified Flanders and some 600 other businesses that they were potentially responsible for investigation and remediation costs incurred at the MEW site pursuant to the

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Comprehensive Environmental Response, Compensation, and Liability Act of 1980.

Flanders had one general liability insurance policy and two umbrella policies with Cincinnati Insurance Company ("Cincinnati") covering property damage claims for specified periods. In September of 1989, Flanders notified Cincinnati of Flanders' status as a potentially responsible party for environmental contamination at the MEW site. Flanders asserted that under the three policies issued by Cincinnati, Cincinnati was obligated to defend and indemnify Flanders against any property damage claim arising from the pollution at the MEW site. Each of the three insurance policies at issue contained an identical pollution exclusion clause. Under the terms of the pollution exclusion clause, the policies did not provide coverage for property damage arising from pollution unless the release of pollutants could be characterized as "sudden or accidental."

Cincinnati denied coverage to Flanders on the insurance policies and filed a declaratory judgment action in federal district court on November 14, 1991, asking the court to support its decision to deny Flanders coverage. On August 7, 1992, Cincinnati filed a motion for summary judgment arguing that Flanders' insurance policies provided no coverage for claims arising from the MEW site due to the pollution exclusion "sudden and accidental" clause. On October 20, 1993, the district court granted Cincinnati's summary judgment motion, holding that the phrase "sudden and accidental" in the pollution exclusion clause was clear and unambiguous and precluded coverage for the type of gradual property damage alleged. Flanders filed a motion to reconsider the court's declaratory judgment and that motion was denied.

Flanders appealed the district court's decision to this Court 1 and oral argument was held on April 12, 1994. On September 2, 1994, while the Flanders' case was under advisement, the Supreme Court of Indiana agreed to hear a direct appeal of a case involving issues quite similar to those presented to us. Specifically, the Indiana Supreme Court was asked in American States Ins. Co. v. Kiger, 662 N.E.2d 945 (Ind.1996), to determine whether under Indiana law an insurance policy's "sudden and accidental" pollution exclusion clause was ambiguous and should be interpreted to mean "unexpected" and "unintended."

Shortly after the Indiana Supreme Court agreed to hear the Kiger case, Flanders filed with us a Motion for Stay of Proceedings based on the pendency of the Kiger decision. We denied Flanders' motion and ten days later, on November 7, 1994, we affirmed the district court's declaratory judgment. Cincinnati Ins. Co. v. Flanders Elec. Motor Serv., Inc., 40 F.3d 146 (7th Cir.1994) ("Cincinnati I"). Noting that this case "presents a question of Indiana law that to date has not been addressed by the Indiana Supreme Court," id. at 150, we held that "if the Indiana Supreme Court were presented with this question, it would conclude that the term 'sudden,' as it is used [in the policies] is unambiguous" and the language of the policies would exclude the type of pollution for which Flanders sought coverage. Id. at 154.

On March 27, 1996, over a year and a half after our decision in Cincinnati I, the Indiana Supreme Court issued its Kiger opinion. In doing so, Indiana's highest court determined that the words "sudden and accidental" in the pollution exclusion clause were ambiguous as a matter of law and should be interpreted to mean "unexpected" and "unintended." Kiger, 662 N.E.2d at 947-48.

As a result of the Indiana Supreme Court's decision, Flanders filed a Motion for Relief from Final Judgment in the district court on May 1, 1996, pursuant to Federal Rules of Civil Procedure 60(b)(5) and 60(b)(6). Shortly after the motion was filed, the Indiana Supreme Court decided another insurance case, Seymour Mfg. Co. v. Commercial Union Ins., 665 N.E.2d 891 (Ind.1996), reaffirming the Kiger opinion's interpretation of the phrase "sudden and accidental" in the pollution exclusion clause.

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On June 19, 1996, the district court denied Flanders' Motion for Relief from Final Judgment. Flanders appeals the district court's decision denying relief under Rule 60(b).

ANALYSIS

A. Standard of Review

We review the denial of a Rule 60(b) motion for an abuse of discretion, but in so doing we may not reach the merits of the underlying judgment. See Soler v. Waite, 989 F.2d 251, 253 (7th Cir.1993). The "abuse of discretion" standard

simply means that we shall not second-guess the decision of a trial judge that is in conformity with established legal principles and, in terms of its application of those principles to the facts of the case, is within the range of options from which one could expect a reasonable trial judge to select.

Id. (quoting United States v. Koen, 982 F.2d 1101, 1114 (7th Cir.1992)). A decision constitutes an abuse of discretion when it is "not just clearly incorrect, but downright unreasonable." Morton v. Smith, 91 F.3d 867, 870 (7th Cir.1996) (quoting Fuller v. CBT Corp., 905 F.2d 1055, 1058 (7th Cir.1990)). Rule 60(b) relief is an extraordinary remedy and is granted only in exceptional circumstances. See Dickerson v. Board of Educ. of Ford Heights, Ill., 32 F.3d 1114, 1116 (7th Cir.1994). The appellant bears the burden of proving the abuse of discretion. See Soler, 989 F.2d at 253.

B. Motion for Relief Pursuant to Rules 60(b)(5) and 60(b)(6) 2

Rule 60(b) specifically authorizes district courts to relieve a party from a final judgment under a variety of circumstances. Nevertheless, the need for the finality of judgments is an overarching concern. Rule 60(b) sets a "higher value on the social interest in the finality of litigation." Merit Ins. Co. v. Leatherby Ins. Co., 714 F.2d 673, 682 (7th Cir.1983). We devote our attention here to subsections (5) and (6) of Rule 60(b), with particular focus on their application in diversity cases involving changes in state decisional law. Diversity cases under Erie 3 present a particular concern for finality. What federal courts in diversity cases attempt to do, where statutory interpretation remains open, is to make a studied effort to determine how a state's highest court would interpret the law in question. Of course, as in any human endeavor, such predictions are not always accurate, but that does not mean that the decision of the federal court--where the prediction is rendered incorrect by a subsequent state supreme court decision--warrants being set aside under Rule 60(b).

Generally, a change in state decisional law is insufficient to constitute an extraordinary circumstance warranting relief under Rule 60(b). As the Supreme Court recently stated, "[i]ntervening developments in the law by themselves rarely constitute the extraordinary circumstances required for relief under Rule 60(b)(6)." Agostini v. Felton, --- U.S. ----, ----, 117 S.Ct. 1997, 2018, 138 L.Ed.2d 391 (1997). This proposition is also set forth in DeWeerth v. Baldinger, 38 F.3d 1266, 1272-73 (2d Cir.1994) where the court observed that "the fact that federal courts must follow state law when deciding a diversity case does not mean that a subsequent change in the law of the state will provide grounds for relief under Rule 60(b)(6)." As the Second Circuit stated, "Erie simply does not stand for the proposition that a plaintiff is entitled to reopen a federal...

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