Hakim v. Massachusetts Insurers' Insolvency Fund

• Decision Date: 14 February 1997
• Citation: 424 Mass. 275,675 N.E.2d 1161
• Parties: , 44 ERC 1851 Ralph W. HAKIM & another 1 v. MASSACHUSETTS INSURERS' INSOLVENCY FUND.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 1161

675 N.E.2d 1161

424 Mass. 275, 44 ERC 1851

Ralph W. HAKIM & another ¹ v. MASSACHUSETTS INSURERS' INSOLVENCY FUND.

Supreme Judicial Court of Massachusetts Norfolk.

Argued Nov. 4, 1996.

Decided Feb. 14, 1997.

Martin C. Pentz (Peter A. Johnson & Raymond Sayeg, Jr., with him), Boston, for plaintiffs.

Peter E. Heppner (Stephen M.A. Woodworth with him), South Easton, for defendant.

Peter G. Hermes & Kevin J. O'Connor, & Laura A Foggan, Daniel E. Troy & N. Christopher Hardee of the District Of Columbia, for Insurance Environmental Litigation Association, amicus curiae, submitted a brief.

Before WILKINS, C.J., and ABRAMS, LYNCH, GREANEY and MARSHALL, JJ.

MARSHALL, Justice.

The question for decision is whether the "owned property" exclusion in a homeowners' insurance policy bars coverage for the costs incurred by the policyholders for the cleanup of an oil spill on their property. The cleanup was undertaken after the policyholders received a notice of responsibility from the Massachusetts Department of Environmental Protection (department). Ralph W. Hakim and Mary F. Hakim (Hakims) commenced this action against Abington Mutual Fire Insurance Company (Abington) ² when Abington, the issuer of their homeowners' insurance policy, refused to indemnify the Hakims for those costs. Abington filed a counterclaim seeking a declaration that it had no coverage obligation to the Hakims. On cross motions for summary judgment, a judge of the Superior Court allowed Abington's motion, denied the Hakims' motion, and entered judgment for Abington. The Hakims appealed and we granted their application for direct appellate review. We vacate the order of the Superior Court granting summary judgment to Abington.

We summarize the material facts which are not in dispute. The Hakims purchased their homeowners' insurance policy from Abington for the period October 7, 1990, to October 7, 1993. On October 8, 1992, a neighbor of the Hakims reported to the local fire department the appearance of a petroleum sheen on the surface of a stream about ninety feet from the Hakims' residence. The source of the contamination was a ruptured underground fuel line leading from an aboveground oil storage tank in the Hakims' basement to the furnace. About one hundred gallons of home heating oil had leaked into the ground and had contaminated the Hakims' property. The fire department disconnected the leaking pipe and installed a temporary pipe aboveground.

The department was notified, and the next day a representative from the department inspected the site and issued a notice of responsibility under G.L. c. 21E, § 5, to the Hakims. The department informed the Hakims that it considered them liable for the "assessment, containment and removal actions necessitated by this incident," and that, if they did not assume responsibility for the cleanup, the department would do so and take appropriate action to "recover all costs, charges and damages" from the Hakims, including interest and treble damages. It advised the Hakims that, if they did assume responsibility for the cleanup, they were to "[d]ispose of the contaminated soil generated at the site" in conformance with the department's current policies.

A licensed environmental engineering firm, ENPRO Services, Inc. (ENPRO), responded to an emergency call from the department and performed certain emergency response actions. In response to the notice of responsibility, the Hakims also retained ENPRO to perform assessment and related remedial work.

ENPRO determined that the leaking oil had migrated through the drainage system of the Hakims' house to an outfall pipe, and from there into a stream which flowed through a corner of the Hakims' property. Beyond the property, the oil passed from the stream, through a pond, and eventually into the Charles River. ENPRO took emergency measures to confine and remove the oil contamination of the adjacent waterways through the use of oil absorbent booms and pads which were placed where the outfall pipe from the Hakims' property connected to the stream, as well as at other locations downstream. An oil spill containment boom was also placed in a downstream pond. These emergency actions were completed by October 12, 1992.

In the following months ENPRO undertook additional assessment and remedial work. It appears that at least through April, 1993, the oil absorbent booms and pads placed on the waterways were kept in place, and that ENPRO checked and changed them from time to time. ³ The remedial work also included the excavation and removal of contaminated soil from beneath the basement slab of the Hakims' house. This remedial action was recommended by ENPRO "to remove and eliminate the secondary source (contaminated soils)" and "in order to achieve compliance with governing environmental guidelines and policies." This work was completed by June, 1993.

The Hakims filed a timely notice of claim with Abington, seeking reimbursement for all the costs they had incurred for the assessment and cleanup. Abington agreed to and apparently did pay for the costs incurred for all the assessment work and for the containment and cleaning of the waterways located near the Hakims' property. ⁴ It refused, however, to pay for the costs of the excavation and removal of the contaminated soil from the Hakims' property. When coverage was refused, the Hakims initiated this action against Abington. ⁵

We begin our consideration with a brief outline of the policy. There are two parts to the policy. Section I provides for "Property Coverages" and contains five categories of coverage: the insureds' "Dwelling" (Coverage A), "Other Structures" (Coverage B), "Personal Property" (Coverage C), "Loss of Use" (Coverage D) and certain other enumerated "Additional Coverages." This section also contains itemizations of "Perils Insured Against," "Exclusions" and "Conditions." The exclusions include a pollution exclusion clause which states that the policy does not cover losses caused by the "release, discharge or dispersal of contaminants or pollutants." The Hakims make no claims for indemnity under Section I of the policy.

Section II, termed "Liability Coverages," contains two categories of coverage; "Personal Liability" (Coverage E), and "Medical Payments to Others" (Coverage F). Section II also contains its own itemizations of "Exclusions," "Additional Coverages" and "Conditions." The Hakims make their claim pursuant to "Coverage E--Personal Liability," which reads in pertinent part: "If a claim is made or a suit is brought against an insured for damages because of bodily injury or property damage caused by an occurrence to which this coverage applies, we will ... pay up to our limit of liability for the damages for which the insured is legally liable." ⁶ That provision, in turn, is subject to certain exclusions. Of relevance to this case is the owned property exclusion which provides that Coverage Personal Liability does not apply to "property damage to property owned by the insured."

The Fund contends that the owned property exclusion limits the scope of liability coverage based on the location of the property harmed and bars coverage for any damage to the policyholders' own property. According to the Fund, it was contractually obliged to pay only for damage to third-party property--in this case the waterways adjacent to the Hakims' property--and had no obligation to pay for any damage to the Hakims' property. The Hakims argue that the location of the cleanup is irrelevant; they seek indemnification for all the cleanup costs that, they say, were incurred "because of" the property damage to the surrounding waterways.

We previously have not addressed the question whether an owned property exclusion bars coverage for the costs of an environmental cleanup of a policyholder's property. ⁷ Numerous other courts have done so, interpreting insurance policies similar to the one at issue here. In cases where environmental contaminants have migrated from a policyholder's property to an adjacent property, courts generally have agreed that the owned property exclusion does not relieve the insurer of all liability for response costs incurred by the cleanup of the policyholder's own property; coverage is not barred if the cleanup is designed to remediate, to prevent or to abate further migration of contaminants to the off-site property. See, e.g., E.I. du Pont de Nemours & Co. v. Allstate Ins. Co., 686 A.2d 152, 157 (Del.1996) ("coverage [is] not ... provided for measures taken on an insured's property unless it is in response to damage to third party property"); Gerrish Corp. v. Universal Underwriters Ins. Co., 947 F.2d 1023, 1030-1031 (2d Cir.1991), cert. denied, 504 U.S. 973, 112 S.Ct. 2939, 119 L.Ed.2d 564 (1992) (applying Vermont law); Bankers Trust Co. v. Hartford Acc. & Indem. Co., 518 F.Supp. 371, 373 (S.D.N.Y.) (applying New York law) ("work done on the property to prevent further oil seepage was as a matter of law within the coverage"), vacated on other grounds, 621 F.Supp. 685 (S.D.N.Y.1981); Olds-Olympic, Inc. v. Commercial Union Ins. Co., 129 Wash.2d 464, 478-480, 918 P.2d 923 (1996). See also State v. Signo Trading Int'l, Inc., 130 N.J. 51, 64, 612 A.2d 932 (1992) ("this case does not fall within the narrow exception allowing recovery for the cost of measures intended to prevent imminent or immediate future damage when a present injury has already been demonstrated"). Applying our familiar rules of interpretation of insurance contracts, we join those courts and hold that where, as here, there was contamination of adjacent property, the costs of remedial efforts to prevent further contamination of that property are not excluded from coverage by the owned property clause. ⁸

The interpretation of an insurance contract is no different from the interpretation of any other contract, and we must construe the words of the policy in their usual and ordinary sense. See Cody v. Connecticut...