Employers Ins. of Wausau v. Petroleum Specialties, Inc.

• Citation: 69 F.3d 98
• Decision Date: 01 November 1995
• Docket Number: No. 92-1629,92-1629
• Parties: EMPLOYERS INSURANCE OF WAUSAU, Plaintiff, Counterclaim Defendant-Appellee, v. PETROLEUM SPECIALTIES, INC., Defendant, Counterclaim Plaintiff, Third Party Plaintiff-Appellant, Zurich Insurance Company, Third-Party Defendant-Appellee.
• Court: United States Courts of Appeals. United States Court of Appeals (6th Circuit)

Page 98

69 F.3d 98

33 Fed.R.Serv.3d 370

EMPLOYERS INSURANCE OF WAUSAU, Plaintiff, Counterclaim Defendant-Appellee, v. PETROLEUM SPECIALTIES, INC., Defendant, Counterclaim Plaintiff, Third Party Plaintiff-Appellant Zurich Insurance Company, Third-Party Defendant-Appellee.

No. 92-1629.

United States Court of Appeals Sixth Circuit.

Argued May 6, 1993.

Decided Nov. 1, 1995.

James R. Case, Kerr, Russell & Weber, Detroit, MI, Patricia St. Peter (argued and briefed), and Brian L. Ripperger, Zelle & Larson, Minneapolis, MN, for Employers Insurance of Wausau.

John Dudley, Jr. (briefed), and Jack D. Shumate (argued), Butzel, Long, Gust, Klein & Van Zile, Detroit, MI, for Petroleum Specialties, Incorporated.

Peter B. Kupelian (briefed and argued), Kupelian, Ormond & Magy, Southfield, MI, for Zurich Insurance Company.

Thomas W. Brunner (briefed), Nancy J. Lemay, Wiley, Rein & Fielding, Washington, DC, and Marilyn E. Kerst, Washington, DC, for Movant-Amicus Curiae.

Before: MARTIN, KRUPANSKY, and BOGGS, Circuit Judges.

BOGGS, Circuit Judge.

Petroleum Specialties, Inc. ("PSI") appeals a grant of summary judgment in this declaratory judgment action in favor of Employers Insurance of Wausau and Zurich Insurance. The parties disagree as to the scope of coverage afforded PSI for certain pollution remediation costs and damages under various insurance policies issued by Wausau and Zurich. For the reasons set out below, we reverse.

I

PSI owns 60 acres of real property in Flat Rock, Michigan. PSI operated an oil refinery there from the early 1930s until approximately 1964. Since 1964, PSI has used the land as a petroleum storage facility. Consistent with its use for petroleum distillation and storage, the property contains an abandoned oil refinery, furnaces and other associated equipment, as well as approximately 38 bulk storage tanks with a capacity in excess of 17 million gallons. It appears indisputable that the property is now heavily contaminated with various pollutants.

The condition of the property came to light, at least for the purposes of this suit, on June 15, 1989, when staff members of the Michigan Department of Natural Resources (MDNR) conducted a site evaluation. Over the next few months, visits by various MDNR personnel led to the discovery of, among other things: a large, open lagoon of petroleum; soil contaminated with PCBs, lead, arsenic, cyanide, and benzene; asbestos construction material; leaking electrical transformers; and leaking drums containing xylene, toluene, and lead.

Matters reached a head when, on January 8, 1991, the MDNR issued a "Potentially Responsible Party (PRP)" letter to PSI. This letter identified PSI as a party potentially responsible for the pollution and directed PSI to investigate and take corrective action. When PSI did not satisfy the demands of the MDNR, the agency issued, on July 28, 1991, an Administrative Order for Response Activity, incorporating a specific remediation plan. When PSI failed to follow the dictates of the Administrative Order, the MDNR filed suit in Michigan state court on November 7, 1991.

Concurrent with these events, PSI had begun a futile effort to secure defense and indemnification from its insurers. Wausau, realizing its potential liability to defend and possibly indemnify PSI, brought a declaratory judgment action on August 20, 1991. Wausau sought a determination that it had no duty to defend or indemnify PSI in any matter related to the remediation of the pollution at the Flat Rock site. On October 2, 1991, PSI filed a counterclaim and joined Zurich as a third-party defendant.

Both Zurich and Wausau have written insurance policies covering PSI. Zurich covered PSI for anything caused by an "accident" from 1951 to 1956. Specifically, Zurich promised to "pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of injury to or destruction of property, including the loss of use thereof, caused by an accident." The policy limited its coverage "to accidents which occur during the policy period." The policy contained no pollution exclusion.

Wausau provided insurance to PSI from July 16, 1956 to August 1, 1985. The policies effective from July 16, 1956 until August 1, 1967 provided that Wausau would pay "on behalf of the insured all sums which the insured shall become obligated to pay by reason of liability imposed upon him ... because of injury to or destruction of property ... caused by accident." (emphasis added). The policies in effect from August 1, 1967 until August 1, 1985 stated that Wausau would "pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... property damage ... caused by an occurrence ...." (emphasis added). All of the Wausau policies provided that they afforded coverage only for accidents or occurrences that took place during the policy period.

From August 1, 1970 until August 1, 1985, each Wausau policy contained a pollution exclusion that precluded coverage for any property damage caused by pollution unless the property damage arose out of a sudden and accidental discharge. Specifically the policy provided that:

It is agreed that the insurance 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 watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release, or escape is sudden and accidental.

According to the terms of the policy, Wausau would have a duty to defend PSI as well as indemnify it. In particular, the policy states that Wausau has "the right and duty to defend any suit against the insured seeking damages on account of ... property damage ... to which this insurance applies...."

On March 2, 1992, having completed at least some discovery, PSI moved for partial summary judgment on the duty to defend issue. Both Wausau and Zurich filed briefs opposing the motion. Furthermore, Zurich, but not Wausau, also made a cross-motion for summary judgment, seeking summary judgment on both the duty to defend and the duty to indemnify issues. After hearing oral argument, the district court entered a judgment on April 24, 1992 that denied PSI's motion for partial summary judgment and granted Zurich's motion for summary judgement. The court also entered, sua sponte, summary judgment for Wausau.

II

This court reviews de novo the district court's grant of Appellees' motion for summary judgment. Baggs v. Eagle-Picher Indus., Inc., 957 F.2d 268, 271 (6th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 466, 121 L.Ed.2d 374 (1992). This court must affirm the district court only if it determines that the pleadings, affidavits, and other submissions 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). When evaluating this appeal, this court must view the evidence in the light most favorable to the non-moving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

The moving party need not support its motion with evidence disproving the nonmoving party's claim, but need only " 'show[ ]'--that is, point[ ] out to the district court--that there is an absence of evidence to support the nonmoving party's case." Celotex Corp. v. Catrett, 477 U.S. 317, 325, 106 S.Ct. 2548, 2553-54, 91 L.Ed.2d 265 (1986). The pivotal question is whether the party bearing the burden of proof has presented a jury question as to each element of its case. Celotex, 477 U.S. at 322, 106 S.Ct. at 2552. The plaintiff must present more than a mere scintilla of evidence in support of his position; the plaintiff must present "evidence on which the jury could reasonably find for the plaintiff." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 252, 106 S.Ct. 2505, 2512, 91 L.Ed.2d 202 (1986). "The 'mere possibility' of a factual dispute is not enough." Mitchell v. Toledo Hosp., 964 F.2d 577, 582 (6th Cir.1992) (quoting Gregg v. Allen-Bradley Co., 801 F.2d 859, 863 (6th Cir.1986)).

All parties agree that we apply Michigan law in this diversity action. The Michigan Supreme Court has held that exclusion clauses in insurance policies are to be strictly construed against the insurer and that ambiguous contract provisions also must be construed against the insurer and in favor of the insured. Farm Bureau Mut. Ins. Co. v. Stark, 437 Mich. 175, 468 N.W.2d 498, 501 (1991). Furthermore, the duty to defend is broader than the duty to indemnify. Stockdale v. Jamison, 416 Mich. 217, 330 N.W.2d 389 (1982). In fact, the insurer must defend a lawsuit even if there are theories of liability that the policy does not cover, so long as there are theories of recovery that fall within the policy's scope. Dochod v. Central Mut. Ins. Co., 81 Mich.App. 63, 264 N.W.2d 122 (Mich.Ct.App.1978). See Detroit Edison Co. v. Michigan Mut. Ins. Co., 102 Mich.App. 136, 301 N.W.2d 832, 835 (1980) (insurer has a duty to defend so long as the allegations "even arguably come within the policy coverage."). See also Oscar W. Larson Co. v. United Capitol Ins. Co., 64 F.3d 1010 (6th Cir.1995). However, the "duty to defend is not an unlimited one." Meridian Mut. Ins. Co. v. Hunt, 168 Mich.App. 672, 425 N.W.2d 111 (1988).

Furthermore, we have held that where the coverage is subject to a pollution exclusion clause, as is the case here under the Wausau policies in effect from 1975 to 1985, the burden is on the insured to demonstrate that the accidents were sudden and accidental, since the presumption is that there is no duty to provide coverage of any sort. Harrow Prods., Inc. v. Liberty Mut. Ins. Co., 64 F.3d 1015, 1020 (6th Cir.1995) ("When a...