Northrop Grumman Guidance & Elecs. Co. v. Emp'rs Ins. Co. of Wausau

• Decision Date: 04 August 2020
• Docket Number: WD 82615 (Consolidated with WD 82623,WD 82636)
• Parties: NORTHROP GRUMMAN GUIDANCE AND ELECTRONICS COMPANY, INC., Appellant-Respondent, v. EMPLOYERS INSURANCE COMPANY OF WAUSAU, Respondent-Appellant, OneBeacon America Insurance Company, Respondent-Appellant, Certain Underwriters at Lloyds of London, Respondent-Appellant, Certain London Market Insurance Companies, Respondent-Appellant.
• Court: Missouri Court of Appeals

612 S.W.3d 1

NORTHROP GRUMMAN GUIDANCE AND ELECTRONICS COMPANY, INC., Appellant-Respondent,

v.EMPLOYERS INSURANCE COMPANY OF WAUSAU, Respondent-Appellant,OneBeacon America Insurance Company, Respondent-Appellant,Certain Underwriters at Lloyds of London, Respondent-Appellant,Certain London Market Insurance Companies, Respondent-Appellant.

WD 82615 (Consolidated with WD 82623

WD 82636)

Missouri Court of Appeals, Western District.

Opinion filed: August 4, 2020

Application for Transfer to Supreme Court Denied September 1, 2020

Application for Transfer Denied December 22, 2020

Johnathan Sokol, for Appellant-Respondent.

Nikki Cannezzaro, Kansas City, for Respondent-Appellant Employers Insurance of Wausau.

Susan Ford Robertson, for Respondent-Appellant OneBeacon America Insurance Company, Certain Underwriters at Lloyds of London and Certain London Market Insurance Companies.

Division One: Thomas H. Newton, Presiding Judge, Mark D. Pfeiffer, Judge and Edward R. Ardini, Jr., Judge

EDWARD R. ARDINI, JR., JUDGE

This is an environmental insurance coverage action that arises out of Northrop Grumman Guidance and Electronics Company, Inc.’s ("Northrop") manufacturing operations at a facility in Springfield, Missouri. Northrop initiated this action in the Circuit Court of Jackson County against its insurers—Employers Insurance Company of Wausau ("Wausau"), OneBeacon America Insurance Company ("OneBeacon") and Certain Underwriters at Lloyd's, London and Certain London Market Insurance Companies ("London")—seeking coverage for contamination at the Springfield facility that resulted in property damage. At the conclusion of the fourteen-day jury trial, Northrop requested the jury award damages totaling over $10 million. The jury found in favor of Northrop on its coverage claim against Wausau and awarded Northrop $199,624 in damages. On Northrop's claims against OneBeacon and London, the jury found in favor of the insurers.

After trial, Northrop requested the trial court enter a judgment declaring Wausau's future defense and indemnity obligations to Northrop. The trial court entered its final judgment on the jury's verdicts and declared that Wausau was responsible for a portion of Northrop's future defense and indemnity costs. All parties appealed. For the reasons stated below, we affirm in part, reverse in part, and remand for entry of judgment consistent with this opinion.

Factual and Procedural Background

Beginning in the mid-1960s, Northrop manufactured printed circuit boards at its Springfield facility ("the Site").¹ Northrop was insured under primary and excess insurance policies that provided liability coverage for Northrop should its operations cause property damage to another. As relevant to this appeal, Northrop was insured under primary policies issued by London (policy period of May 2, 1964 to May 2, 1967), OneBeacon² (policy period of May 2, 1967 to January 1, 1969), and Wausau (policy period of January 1, 1969 to April 1, 1971). The Wausau policy was initially slated to end on January 1, 1972, however Northrop cancelled the policy effective April 1, 1971 so that it could "self-insure"—i.e., forgo primary insurance coverage. Northrop was also insured under excess policies issued by London (policy periods of May 2, 1964 to February 2, 1966 and February 2, 1966 to February 2, 1969) and OneBeacon (policy period January 1, 1969 to July 3, 1969).³ The relevant provisions of these policies will be discussed later in our analysis.

Northrop used the solvent trichloroethylene ("TCE") in manufacturing its circuit boards, and copper

residue was generated during the manufacturing process. Northrop managed its sludge containing TCE and waste water containing dissolved TCE and copper in various ponds, pits, and lagoons at the Site, which the parties refer to as "Areas of Concern." The Areas of Concern at issue in this matter are the "Original Acid Pits," "Building Footprint," "Percolation Terrace/ A/B Lagoon," "New Acid Pit," and the "Sanitary Lagoon." The dates of operation of each Area of Concern varied.

In 1993, the Missouri Department of Natural Resources ("MDNR") asserted an administrative claim against Northrop, alleging that Northrop's manufacturing operations at the Site resulted in the release of hazardous substances that caused environmental contamination. In July 1993, Northrop entered into a consent agreement with MDNR requiring Northrop to investigate, develop, and implement an on-site remedial action plan (the "1993 Consent Agreement"). The 1993 Consent Agreement was limited to the cleanup of impacted soil and groundwater within the boundaries of the Site, however it provided that if contamination were to be found beyond the Site's boundaries, the "Agreement may be modified or a new Agreement executed to assess the additional problem."

In December 2002, Northrop received correspondence from MDNR alleging that the Site was the source of contamination detected off-site in underground springs and at the Springfield Airport. In June and July of 2004, Northrop sent correspondence to Wausau, OneBeacon, and London tendering coverage for the 2002 claim. Wausau did not receive those letters, and did not receive notice of the claim until Northrop sent an additional letter in October 2004. In Wausau's response to the October 2004 letter, it took the position that it had no obligation to defend the 2002 claim until MDNR filed a lawsuit, and it requested additional information from Northrop regarding the claim. London also requested additional information from Northrop; on multiple occasions London requested Northrop provide documents and records in connection with the claim. Northrop did not receive a response from one OneBeacon regarding the tender.

In December 2010, the State of Missouri, on behalf of MDNR, filed an action against Northrop in federal court pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act, 42 U.S.C. § 9601 et seq. (the "MDNR Lawsuit"). The State's complaint alleged that property adjoining the Site had been contaminated with hazardous substances attributable to Northrop's operations. The State sought responsive actions by Northrop and reimbursement of the State's response costs.

Contemporaneous with the filing of the lawsuit, Northrop and the State entered into a consent decree ("2010 Consent Decree") addressing remedial actions necessary both on- and off-site. Northrop did not admit any liability in the 2010 Consent Decree, but agreed to finance and perform specified work to remediate the contamination. The 2010 Consent Decree "supersede[d] the 1993 Consent Agreement" and upon the effective date of the 2010 Consent Decree, the 1993 Consent Agreement terminated "with the exception of any outstanding obligation of [Northrop] to reimburse MDNR for past response costs incurred under the 1993 Consent Agreement." Northrop and the State sought the federal district court's approval of the 2010 Consent Decree; such approval was granted, and the district court executed and entered the agreement on June 1, 2011. Thereafter, the MDNR Lawsuit was dismissed.

In December 2010, Northrop tendered coverage for the MDNR lawsuit to Wausau, OneBeacon, and London. OneBeacon and London denied coverage on two bases: (1) the claims were released by Northrop in prior settlement agreements related to litigation involving different sites; and (2) Northrop failed to establish a loss occurred during the pendency of the policies. Wausau agreed to defend Northrop under a reservation of rights. Beginning in 2011, Wausau and Northrop engaged in settlement negotiations regarding Northrop's claim for coverage. The negotiations were ultimately unsuccessful, and despite Wausau agreeing to defend Northrop regarding the MDNR Lawsuit, Wausau did not pay any amounts to Northrop in connection with the MDNR Lawsuit.

In 2013, Northrop filed this coverage action asserting three counts against Wausau—breach of contract, vexatious refusal to pay, and declaratory judgment—and one count of declaratory relief each against OneBeacon and London. The insurers asserted various affirmative defenses to coverage, including that Northrop failed to give prompt notice of the claim and failed to cooperate with the insurers as required under their policies.

The parties filed pre-trial briefing regarding the issue of "allocation." Because this issue is central to this appeal, we briefly explain its legal underpinnings. " ‘[A]llocation’ determines how losses are divided amongst the insured and its insurers." Nooter Corp. v. Allianz Underwriters Ins. Co. , 536 S.W.3d 251, 264 (Mo. App. E.D. 2017). The issue is more complex where the claims involve allegations of continuous damage over a long period of time and where multiple policies are in effect during that period. See id. at 259, 264. "[T]wo leading methods of allocation have emerged to address this issue: the ‘all sums’ approach and the ‘pro-rata’ approach." Id. at 264. "The ‘all sums’ approach allows the policyholder to select a policy among the range of years triggered by the ‘occurrence’ at issue" and obtain the entire amount of its damages from that insurer up to the policy limits. Id. at 264 & n.15. The insurer may then "be able to recoup some or all of these funds from other insurers." Id. at 264. "Conversely, under the pro rata approach, damages are spread proportionately across the entire period during which the property damage takes place" and each insurer is responsible for its portion of the damages. Id. & n.14 (internal marks omitted).

Northrop requested that the trial court find the "all sums" allocation method applicable to the insurers’ coverage obligations. The insurers asserted that the "pro rata" allocation method applied. After hearing argument, the trial court issued a pre-trial order ruling that "any liability of defendants herein shall be determined using the pro rata, and not the all sums, approach to allocation." The trial court found that "the pro rata allocation based on each...