Michigan Chemical Corp. v. American Home Assur. Co.

• Decision Date: 01 March 1984
• Docket Number: Nos. 82-1438,s. 82-1438
• Citation: 728 F.2d 374
• Parties: 14 Envtl. L. Rep. 20,290 MICHIGAN CHEMICAL CORPORATION, Plaintiff-Appellee, and American Mutual Reinsurance Company, Plaintiff-Intervenor-Appellee, v. AMERICAN HOME ASSURANCE COMPANY, Principal Defendant and Third-Party Plaintiff-Appellant, (82-1438) and INSURANCE COMPANY OF NORTH AMERICA, Defendant-Appellant, (82-1439) Aetna Casualty & Surety Company, Defendant-Appellant, (82-1440) v. MIDLAND INSURANCE COMPANY, Third-Party Defendant. to 82-1440.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 374

728 F.2d 374

14 Envtl. L. Rep. 20,290

MICHIGAN CHEMICAL CORPORATION, Plaintiff-Appellee, and American Mutual Reinsurance Company, Plaintiff-Intervenor-Appellee, v. AMERICAN HOME ASSURANCE COMPANY, Principal Defendant and Third-Party Plaintiff-Appellant, (82-1438) and INSURANCE COMPANY OF NORTH AMERICA, Defendant-Appellant, (82-1439)

Aetna Casualty & Surety Company, Defendant-Appellant, (82-1440) v. MIDLAND INSURANCE COMPANY, Third-Party Defendant.

Nos. 82-1438 to 82-1440.

United States Court of Appeals, Sixth Circuit.

Argued Oct. 14, 1983.

Decided March 1, 1984.

Robert F. Finke, Mayer, Brown & Platt, Chicago, Ill., Thomas J. McNamara, argued, Grand Rapids, Mich., for Michigan Chemical Corp. plaintiff-appellee.

Donald M. Haskell, Michael J. Sehr, argued, William F. Ryan, Haskell & Perrin, Chicago, Ill., Michael W. Betz, Grand Rapids, Mich., for American Mut. Reinsurance Co. plaintiff-intervenor-appellee.

Thomas Burke, James T. Ferrini, argued, Clausen, Miller, Gorman, Caffrey & Witous, Chicago, Ill., A. Newton Dilley, Charles N. Dewey, Jr., Dilley, Dewey & Waddell, Grand Rapids, Mich., for Ins. Co. of North America defendant-appellant.

D. Kendall Griffith, argued, Hinshaw, Clubertson, Moelmann, Hoban & Fuller, Thomas J. Weithers, Chicago, Ill., Robert J. Eleveld, Grand Rapids, Mich., Robert J. Feldhake, Lord, Bissell & Brook, Los Angeles, Cal., for Aetna Cas. and Sur. Co. defendant-appellant.

David M. Tyler, argued, Tyler & Canham, Detroit, Mich., William G. Reamon, Grand Rapids, Mich., Gerald B. Mullin, Epton, Mullin, Segan & Druth, Chicago, Ill., Patrick Foley, Samuel H. Brenner, American Home Assur. Co., New York City, for American Home Assur. Co. principal defendant and third-party plaintiff-appellant.

Theron K. Carter, Middleville, Mich., Patrick W. Priest, Kalamazoo, Mich., amicus curiae.

C. Barry Montgomery, Jacobs, Williams & Montgomery, Chicago, Ill., for Midland Ins. Co. third-party-defendant.

Before KEITH, CONTIE and WELLFORD, Circuit Judges.

CONTIE, Circuit Judge.

The defendants, American Home Assurance Company (American Home), Aetna Casualty and Surety Company (Aetna) and Insurance Company of North America (INA) have filed an interlocutory appeal in response to a partial summary judgment granted by the district court in favor of the plaintiffs, Michigan Chemical Corporation (MCC) and American Mutual Reinsurance Company (Amreco). Since the district court's order involves a controlling question of law upon which there is substantial ground for difference of opinion, and since an immediate appeal will materially advance the ultimate termination of this litigation, this court has jurisdiction pursuant to 28 U.S.C. Sec. 1292(b). We reverse and remand for further proceedings consistent with this opinion.

I.

MCC filed a declaratory judgment action in the district court in order to determine how much insurance coverage was available to pay farmers who had sustained property damage resulting from the distribution of contaminated livestock feed throughout Michigan. The record reflects that in early 1973, MCC produced and distributed both a magnesium oxide livestock feed supplement and a flame retardant which contained the toxin polybrominated biphenyl (PBB). These substances were packaged in nearly identical brown fifty-pound bags. The sole difference between the magnesium oxide and PBB bags was the stenciled trade names of the respective products, "Nutrimaster" and "Firemaster."

The district court found that MCC accidentally shipped PBB rather than magnesium oxide to Farm Bureau Services on May 2, 1973. The court did not determine whether any other accidental shipments occurred. Farm Bureau Services then mixed the PBB with regular feed and sold the resulting product to dairy farmers. In October of 1973, the farmers began complaining that some animals were rejecting the feed and that ingestion caused decreased milk production. After Farm Bureau Services and state authorities discovered that the feed was contaminated, 28,679 cattle, 4,612 swine, 1,399 sheep and over 6,000 chickens and other farm animals were destroyed. Their owners filed hundreds of claims against MCC and Farm Bureau Services.

MCC possessed five liability indemnity insurance policies during 1973-74, the time period in which the property damage took place. Travelers Indemnity Company (Travelers) provided the primary coverage of $1 million per "occurrence," subject to an annual aggregate limit of $1 million. If losses exceeded these limits, excess layers of insurance provided further coverage. Lloyd's of London (Lloyd's) contracted to pay the next $2 million per occurrence, subject to an annual aggregate limit of $2 million. American Home provided an additional $15 million of coverage per occurrence with an annual aggregate limit of $15 million. Midland Insurance Company reinsured some of American Home's potential liability. Amreco reinsured Midland. Finally, Aetna and INA agreed to share equally any further MCC liability up to $10 million per occurrence, subject to an annual aggregate limit of $10 million. The American Home and Aetna policies tracked the other terms and conditions of the Lloyd's policy; the INA policy adopted those of the Travelers' policy. MCC's total liability coverage for property damage during the relevant time period therefore was $28 million per occurrence.

MCC and Amreco have contended throughout this litigation that each claim filed against MCC constitutes an "occurrence" within the meaning of the insurance policies. They argue that there can be no occurrence until injury takes place because an indemnifiable event stems not from an insured's abstract act of negligence, but arises only when damage is suffered. The plaintiffs therefore assert that the five insurers are liable for $28 million per filed claim, subject to the $28 million aggregate annual limit of all the policies combined. Since all of the property damage took place in 1973 and 1974, the plaintiffs argue that MCC's total liability coverage is $56 million.

Conversely, American Home, Aetna and INA contend that the only "occurrence" was the May 2, 1973 accidental shipment of PBB. Although injury must be suffered before the insured becomes liable, the timing of the injury only determines the policy year to which that injury is assigned. The number of occurrences is said to be governed by the cause of the accident rather than its effects. Since the cause of the property damage in this case allegedly was a single mis-shipment of PBB, the defendants conclude that MCC's maximum coverage is $28 million.

To date, MCC and Farm Bureau Services have paid over $45 million in claims. The five insurers have acknowledged that one occurrence took place and have contributed $28 million to the settlement of these claims. In consideration for being dismissed from this suit, Travelers has paid an additional $1 million and Lloyd's has paid an additional $2 million. Travelers has received a refund of over $960,000 in deductibles. Lloyd's will not receive such a refund.

The plaintiffs raised one additional issue before the district court. Since Amreco's obligations expired on December 31, 1973, it is in Amreco's interest to have as many damages fall in the 1974 policy year as possible. Consequently, Amreco argued before the district court that particular damage claims should be assigned to the year in which injury to the affected animal became manifest as opposed to the year in which exposure to the contaminated feed took place. MCC, however, argued for the exposure theory.

The district court ¹ found the definitions of "occurrence" in the insurance policies to be ambiguous and therefore construed the policies against the defendants. Hence, MCC's argument that the number of occurrences equals the number of claims was held to be reasonable. ² The district court held in abeyance the plaintiffs' motions concerning whether the manifestation theory or the exposure theory would determine the policy year to which particular damages would be assigned.

II.

Before considering the language of the insurance contracts at issue, two preliminary points merit emphasis. First, MCC contends that Michigan law rather than Illinois law controls this diversity case even though MCC did not dispute the applicability of Illinois law in the district court. 530 F.Supp. at 154 n. 6. Since MCC did not raise this argument below, it may not do so now. ³

Second, although no Illinois case discusses the precise question at hand, we are bound by the general principles of Illinois contract law. The interpretation of an insurance contract is a matter of law subject to de novo appellate review. See, e.g., Rogers v. Robson, Masters, Ryan, Brumund & Belom, 74 Ill.App.3d 467, 470, 30 Ill.Dec. 320, 392 N.E.2d 1365 (1979), aff'd., 81 Ill.2d 201, 40 Ill.Dec. 816, 407 N.E.2d 47 (1980); Illinois Casualty Company v. Peters, 73 Ill.App.3d 33, 34, 29 Ill.Dec. 284, 391 N.E.2d 547 (1979); Rivota v. Kaplan, 49 Ill.App.3d 910, 914, 7 Ill.Dec. 176, 364 N.E.2d 337 (1977). A court should interpret an insurance contract as a whole in order to ascertain the intent of the parties and should take into account the subject matter of the contract, the circumstances under which it was made and the purpose sought to be achieved by the parties. See, e.g., Dora Township v. Indiana Insurance Co., 78 Ill.2d 376, 378, 36 Ill.Dec. 341, 400 N.E.2d 921 (1980); Weiss v. Bituminous Casualty Corp., 59 Ill.2d 165, 170-71, 319 N.E.2d 491 (1974); State Farm Fire & Casualty Co. v. Moore, 103 Ill.App.3d 250, 255-56, 58 Ill.Dec. 609, 430 N.E.2d 641 (1980). Where the parties have expressed their intent in plain and unambiguous contract terms, the language must be given its ordinary and common meaning without further construction. See, e.g., United States Fire Insurance Co. v. Schnackenberg, 88 Ill.2d 1, 4-5, 57 Ill.Dec. 840, 429 N.E.2d 1203 (1981); Dora Township, 78 Ill.2d at 378, 36 Ill.Dec. 341, 400 N.E.2d 921; Weiss, 59...