40 F.3d 146 (7th Cir. 1994), 93-3617, Cincinnati Ins. Co. v. Flanders Elec. Motor Service, Inc.
| Citation | 40 F.3d 146 |
| Party Name | CINCINNATI INSURANCE COMPANY, Plaintiff-Appellee, v. FLANDERS ELECTRIC MOTOR SERVICE, INCORPORATED, Defendant-Appellant. |
| Case Date | November 07, 1994 |
| Court | United States Courts of Appeals, U.S. Court of Appeals — Seventh Circuit |
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Argued April 12, 1994.
Rehearing Denied Dec. 13, 1994.
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[Copyrighted Material Omitted]
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Karl L. Mulvaney, Martha S. Hollingsworth (argued), Tammy J. Meyer, Barry C. Cope, Bingham, Summers, Welsh & Spilman, Indianapolis, IN, for plaintiff-appellee.
David V. Miller, Bowers, Harrison, Kent & Miller, Evansville, IN, Joseph G. Nassif (argued), Linda W. Tape, Jane Fedder Lazaroff, Coburn & Croft, St. Louis, MO, for defendant-appellant.
Daniel B. Dovenbarger, Pamela Carter, Asst. Atty. Gen., Anita Kimmell, Office of the Atty. Gen., Indianapolis, IN, for Indiana Dept. of Environmental Management, Indiana Atty. Gen., amici curiae.
Eugene R. Anderson, Lester O. Brown, Mayda Prego, Anderson, Kill, Olick & Oshinsky, New York City, for Elec. Apparatus Service Ass'n, amicus curiae.
George Plews, Jeffrey D. Claflin, Plews & Shadley, Indianapolis, IN, for Indiana Mfrs. Ass'n, Inc., amicus curiae.
Laura A. Foggan, Richard H. Gordin, Vicki L. Robinson, Wiley, Rein & Fielding, Washington, DC, for Ins. Environmental Litigation Ass'n, amicus curiae.
Norman T. Funk, Hill, Fulwider, McDowell, Funk & Matthews, Indianapolis, IN, Victor C. Harwood, III, Edward Zampino, Peter E. Mueller, Harwood & Lloyd, Hackensack, NJ, for Aetna Cas. and Sur. Co., amicus curiae.
Before WOOD, Jr., COFFEY, and KANNE, Circuit Judges.
COFFEY, Circuit Judge.
Flanders Electric Motor Service, Inc. ("Flanders") appeals from summary judgment granted in favor of its insurer, Cincinnati Insurance Co. ("Cincinnati"). In this declaratory judgment action, the district court held that the pollution exclusion clause contained in three comprehensive general liability policies issued to Flanders by Cincinnati relieved the insurer of any duty to defend or indemnify its policyholder against property damage claims arising from releases of polychlorinated biphenyls ("PCBs") at the Missouri Electric Works ("MEW") site in Cape Girardeau, Missouri over the last two decades. We affirm.
I. BACKGROUND
Flanders is an electrical service shop that sells and repairs motors and other equipment at its facility in Evansville, Indiana. Between 1971 and 1988, Flanders sent "overflow work"--work that presumably could not be completed by Flanders in a timely fashion--consisting of several electrical transformers to MEW's service shop for repair. Certain of these transformers may have been filled with insulating oil or dielectric fluids contaminated with PCBs. 1
In the mid 1980s, the Missouri Department of Natural Resources ("MDNR") and the United States Environmental Protection Agency ("EPA") discovered PCB contamination at the MEW site. Extensive investigations conducted by the MDNR and the EPA revealed that the soil at the MEW site contained concentrations of PCBs of up to 58,000 parts per million. The accepted safe level of PCBs in the environment is fifty parts per million. 2 The EPA's Final Report, issued in December 1987, concluded that leaking oil-filled drums and transformers stored at the MEW site caused releases of an unknown
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quantity of PCB-laden oil and dielectric fluid over a period of twenty years.
The EPA identified more than six hundred businesses as potentially responsible parties ("PRPs") liable for investigation and remediation costs incurred at the MEW site under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), as amended, 42 U.S.C. Secs. 9601-9675. 3 Each of these entities, including Flanders, had sent oil-filled electrical equipment containing PCBs to the MEW site. By a letter dated June 30, 1987, the EPA notified Flanders that PCB contaminated soils had been found at the MEW site and that Flanders was considered potentially responsible for response costs incurred at the site. 4
A group of MEW PRPs, not including Flanders, formed a Steering Committee to represent their interests, develop proposals for conducting remedial activities at the site, and conduct settlement negotiations with the EPA. Representatives from the Steering Committee successfully negotiated a settlement agreement with the EPA and, in September 1991, the EPA circulated a proposed Consent Decree to all the MEW PRPs. The letter accompanying the proposed Consent Decree advised each PRP that "any discussion of allocation of liability is for settlement purposes only" and that "[t]hose PRPs who do not enter into the Consent Decree ... will be deemed jointly and severally liable for any costs remaining for EPA to recover."
The proposed Consent Decree allocated responsibility for response costs among the PRPs based, in part, on the total number of transformers each PRP shipped to the MEW site. Flanders challenged the EPA's allocation of responsibility for several transformers shipped and deposited by Flanders at the MEW site. The EPA reduced Flanders's allocation of responsibility for certain transformers drained of their oil prior to shipment to MEW, and allowed Flanders to share its allocation of responsibility with the owners of certain other transformers. Although the EPA reduced Flanders's allocation of responsibility under the formula set forth in the proposed Consent Decree, it continued to consider Flanders a potentially responsible party. Flanders declined to participate in the Consent Decree. 5
In September 1989, Flanders notified Cincinnati of its status as a PRP at the MEW site. Cincinnati insured Flanders's operations under one primary comprehensive general liability policy extending from 1985 to 1990 and two umbrella policies covering the period from 1978 to 1987. 6 Flanders claimed that under each of these three policies, Cincinnati was obligated to defend and indemnify Flanders against any property damage claims arising from the environmental contamination at the MEW site.
Each of the three policies Cincinnati issued to Flanders contained the identical pollution exclusion clause, stating that coverage would not be provided for property damage
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... 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; ...
Stated simply, these policies did not provide coverage for property damage arising from pollution unless the release of pollutants could be classified as "sudden and accidental."
The insurer, after investigating Flanders's claim and reviewing its policies, concluded that the property damage arising from the environmental contamination at the MEW site was not the result of a "sudden and accidental" occurrence. Cincinnati rejected Flanders's claim for coverage and, on November 14, 1991, initiated this action for declaratory relief. On August 7, 1992, Cincinnati filed a motion for summary judgment, arguing that it properly denied coverage for Flanders's claim, based on the pollution exclusion clause in each of the three policies. The district court granted Cincinnati's motion for summary judgment, holding that the phrase "sudden and accidental" in the pollution exclusion clause was clear and unambiguous and precluded coverage for property damage claims arising from releases of PCBs at the MEW site that occurred gradually over the course of twenty years.
II. DISCUSSION
A. Standard of Review
We review the district court's decision to grant summary judgment de novo. Fittshur v. Village of Menomonee Falls, 31 F.3d 1401, 1405 (7th Cir.1994). Summary judgment is proper only when "the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c); Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). In determining whether summary judgment is appropriate, we must view the evidence, and all reasonable inferences that can be drawn from the evidence, in the light most favorable to the non-moving party. Kennedy v. United States, 965 F.2d 413, 417 (7th Cir.1992); Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). As a federal court sitting in diversity, we must determine whether the district court properly applied the relevant state substantive law. Colip v. Clare, 26 F.3d 712, 714 (7th Cir.1994).
The issue raised in this case is straightforward: whether, as a matter of Indiana law, the pollution exclusion clause contained in the three comprehensive general liability policies issued to Flanders by Cincinnati precludes coverage for liability arising from the gradual environmental contamination at the MEW site. Our determination of this issue turns on the meaning of the phrase "sudden and accidental" as it is used in the pollution exclusion clause. This case presents a question of Indiana law that to date has not been addressed by the Indiana Supreme Court. Our duty is to determine, as best we can, how this dispute would be resolved by the Indiana Supreme Court. Todd v. Societe Bic, S.A., 21 F.3d 1402, 1405 (7th Cir.), cert. denied, --- U.S. ----, 115 S.Ct. 359, 130 L.Ed.2d 312 (1994). Because this area of state law is presently undeveloped, we look to illuminating authority from other jurisdictions. Id.
B. The "Sudden and Accidental" Exception to the Pollution Exclusion Clause
The pollution exclusion clause bars coverage for property damages caused by pollution unless the release of pollutants was "sudden and...
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