Morrisville Water & Light Dept. v. USF&G, CO.
| Decision Date | 04 October 1991 |
| Docket Number | Civ. A. No. 89-322. |
| Citation | 775 F. Supp. 718 |
| Court | U.S. District Court — District of Vermont |
| Parties | VILLAGE OF MORRISVILLE WATER & LIGHT DEPARTMENT v. UNITED STATES FIDELITY & GUARANTY COMPANY. |
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Russell F. Smith, III, Spiegel & McDiarmid, Washington, D.C., and, William M. Piper, Primmer & Piper, St. Johnsbury, Vt., for plaintiff.
Michael B. Clapp, Dinse, Erdmann and Clapp, Burlington, Vt., for defendant.
This diversity action involves a dispute between an insurer and its insured concerning coverage for environmental clean-up costs mandated by the U.S. Environmental Protection Agency ("EPA"), pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"). Specifically, the Village of Morrisville Water & Light Department ("Morrisville") seeks an injunction and a declaratory judgment stating that the United States Fidelity & Guaranty Company ("Fidelity") must defend and indemnify Morrisville for the claims made against it concerning the clean-up of the "Rose Chemicals site" in Holden, Missouri. Both Morrisville and Fidelity have moved for summary judgment.
We heard argument on the parties' cross-motions for summary judgment on September 13, 1991. For the reasons stated below, we hold that the policies provide coverage for the claims concerning the Rose Chemicals site. Therefore, we deny Fidelity's motion for summary judgment. However, genuine issues of material fact exist concerning whether Fidelity's denial of coverage was made in bad faith. Thus, we grant Morrisville's motion for summary judgment in part and deny it in part.
Morrisville is a utility company owned by the Village of Morrisville, Vermont. Fidelity is a Maryland corporation authorized to sell insurance in Vermont. Morrisville was insured by Fidelity from 1983 through 1988, under a comprehensive general liability policy ("CGL policy") and a comprehensive excess indemnity policy ("Indemnity policy").
On July 23, 1984, Morrisville sent material which contained polychlorinated biphenyls ("PCBs") to the Rose Chemicals site in Holden, Missouri. The EPA had approved the site for the disposal of PCBs, but the owner of the site failed to properly treat, store, or dispose of the hazardous materials. The owner eventually abandoned the site, leaving behind soil and water contaminated with millions of pounds of PCBs.
Under CERCLA, the EPA identifies sites contaminated with hazardous materials, and it identifies the parties "potentially responsible" for the contamination. 42 U.S.C. §§ 9601-9625. The EPA may obtain an injunction to compel the potentially responsible parties to clean-up the site, or it may conduct the clean-up itself and then sue the polluters for reimbursement. 42 U.S.C. §§ 9606-07. However, the EPA's general practice has been to encourage the voluntary clean-up of the contaminated sites by the entities responsible for the pollution. See generally Note, Superfund Settlements: The Failed Promise of the 1986 Amendments, 74 Va.L.Rev. 123 (1988). An agreement between the EPA and the potentially responsible parties is generally embodied in a "consent decree." This consent decree is entered in the federal district court for the district where the contaminated site is located. 42 U.S.C. §§ 9622(a), (b), (d).
In the present case, the EPA notified Morrisville in 1986 of its status as a "potentially responsible party"1 for the contamination at the Rose Chemicals site. Previously, the EPA had notified other entities, who had also disposed of hazardous waste at the site, that they were considered potentially responsible parties. Some of these entities formed the Rose Chemicals Steering Committee ("Steering Committee"), which then developed a plan for cleaning-up the site.2
On January 29, 1989, Morrisville entered into a "Consent Party Agreement" with the EPA and the Steering Committee, and it paid the Steering Committee $15,920.00 for its allocated share of the clean-up costs for the Rose Chemicals site. Under the terms of the Consent Party Agreement, Morrisville remains potentially liable for further clean-up costs. On July 25, 1989, the Steering Committee filed a lawsuit in the United States District Court for the Western District of Missouri3 against all potentially responsible parties who had not entered into an agreement with the EPA or the Steering Committee concerning the site. By signing the Consent Party Agreement, Morrisville avoided being named as a defendant in that case.
Morrisville timely notified Fidelity of the EPA's claim against it for clean-up costs. Fidelity denied coverage over two years after receiving this notification. Morrisville then brought this action to obtain a declaratory judgment stating that CERCLA clean-up costs are covered under the CGL and Indemnity policies. Morrisville also seeks a declaratory judgment that Fidelity is obligated to defend and indemnify it for all claims concerning the clean-up of the Rose Chemicals site. Finally, Morrisville seeks costs and attorneys' fees for Fidelity's "bad faith" denial of coverage.4
Morrisville now moves for summary judgment on its complaint. Fidelity opposes Morrisville's motion, and it moves for summary judgment. This opinion concerns those cross-motions for summary judgment.
A moving party is entitled to summary judgment if no genuine issues of material fact exist, and if the moving party is entitled to judgment as a matter of law. Fed.R.Civ.P. 56(c). Both Morrisville and Fidelity agree on the material facts of this case. What they disagree on is whether the CGL and Indemnity policies provide coverage for the claims brought against Morrisville under CERCLA. This issue is appropriately decided by summary judgment, because the construction of an insurance policy is a question of law, not fact. Vermont Inv. Capital, Inc. v. Granite Mut. Ins. Co., 705 F.Supp. 1019, 1021 (D.Vt.), aff'd, 888 F.2d 1377 (2d Cir.1989).
In order to determine whether summary judgment is appropriate for either party, we must conduct a three-part analysis. First, we must determine whether Vermont or Missouri law applies to the interpretation of the policies at issue. Secondly, we must decide whether the claims against Morrisville are covered under the terms of the CGL and Indemnity policies. Finally, if we determine that the policies do provide coverage, then we must decide whether Fidelity's denial of coverage was made in bad faith.
Morrisville argues that we should apply Vermont law to this case, while Fidelity argues that Missouri law governs the outcome of this case. To resolve this issue we must apply Vermont's choice of law rule for insurance contract actions. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941).
In Pioneer Credit Corp. v. Carden, 127 Vt. 229, 233, 245 A.2d 891, 894 (1968), the Vermont Supreme Court looked to the Restatement (Second) of Conflict of Laws § 1885 to determine which state law applied to a dispute concerning promissory notes. The trial court had held that Vermont law applied to the promissory notes at issue, because the makers of the notes resided in Vermont and the property offered as security for the notes was located in Vermont. Id. at 233, 245 A.2d at 893. The Vermont Supreme Court reversed, because "in evaluating the relative importance of these contact points of the contract, the place of the making and the place of performance are entitled to substantial weight." Id. The court concluded that the parties' rights and obligations under the notes were "governed by the law of Massachusetts where the notes were made, delivered and payable." Id.
In the present case, the only contact with Missouri is Morrisville's one-time delivery of hazardous waste to the Rose Chemicals site. In contrast, Vermont has many contacts with the policies and the parties. The policies were negotiated in Vermont, delivered in Vermont, and the premiums were paid in Vermont. Morrisville is located in Vermont and does most of its business in Vermont. The CGL policy also states that it "is issued and delivered subject to the Laws of Vermont ..." See CGL policy at Vermont Liability Endorsement.
Fidelity argues that "there can be little doubt that Missouri has a greater concern than Vermont with all the proceedings related to the cleanup of the Rose Chemicals site." Fidelity Motion for Summary Judgment at 3. Although Missouri has a great interest in the clean-up of hazardous waste sites within its borders, the issue in the present case involves a question of policy coverage, not pollution clean-up. We believe that the Vermont Supreme Court would find that Vermont law controls the interpretation of insurance policies which were negotiated, executed, and paid for in Vermont. Therefore, we will apply Vermont law to this case.6
When Morrisville sent its material to the Rose Chemicals site in 1984, it was the "Insured" under the CGL and Indemnity policies issued by Fidelity. The CGL policy states, in pertinent part, that Fidelity will:
pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of ... property damage to which this insurance applies, caused by an occurrence, and Fidelity shall have the right and duty to defend any suit against the Insured seeking damages on account of such ... property damage, even if any of the allegations of the suit are groundless, false or fraudulent....
See CGL Policy at Insuring Agreement (emphasis added). The Indemnity policy also states, in pertinent part, that Fidelity will:
indemnify the Insured for all sums which the Insured shall become legally obligated to pay as damages because of ... property damage ... to which this policy applies caused by an occurrence which takes place anywhere.
See Indemnity Policy at Insuring Agreement (emphasis added).
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