A. Johnson & Co., Inc. v. Aetna Cas. and Sur. Co.

• Decision Date: 06 December 1990
• Docket Number: No. 90-1753,90-1753
• Citation: 933 F.2d 66
• Parties: , 21 Envtl. L. Rep. 21,424 A. JOHNSON & CO., INC., and A. Johnson Energy Marketing, Inc., Plaintiffs, Appellants, v. The AETNA CASUALTY AND SURETY COMPANY, Defendant, Appellee. . Heard
• Court: U.S. Court of Appeals — First Circuit

Page 66

933 F.2d 66

33 ERC 1491, 21 Envtl. L. Rep. 21,424

A. JOHNSON & CO., INC., and A. Johnson Energy Marketing Inc., Plaintiffs, Appellants, v. The AETNA CASUALTY AND SURETY COMPANY, Defendant, Appellee.

No. 90-1753.

United States Court of Appeals First Circuit.

Heard Dec. 6, 1990.

Decided May 14, 1991.

Robert L. Ciociola with whom Mary-Jo McNamara and Weiss, Angoff, Coltin & Koski, P.C., Boston, Mass., were on brief, for plaintiffs, appellants.

John P. Graceffa with whom Gallagher & Gallagher, P.C., Boston, Mass., was on brief, for defendant, appellee.

Sharon Rau Dissinger, Thomas W. Brunner, Laura A. Foggan, Francis M. Gaffney and Wiley, Rein & Fielding, Washington, D.C., on brief, for Ins. Environmental Litigation Ass'n, amicus curiae.

Before CAMPBELL, Circuit Judge, COFFIN, Senior Circuit Judge, and TORRUELLA, Circuit Judge.

LEVIN H. CAMPBELL, Circuit Judge.

Plaintiffs-appellants A. Johnson & Co., Inc. and its subsidiary, A. Johnson Energy Marketing, Inc. (together, "Johnson") brought this diversity action seeking a declaration of rights under comprehensive general liability insurance policies provided by the Aetna Casualty and Surety Company ("Aetna") to Johnson's corporate predecessors, ¹ Atlantic Terminal Corporation ("Atlantic") and Titan Petroleum Company, Inc. ("Titan"). Johnson seeks a declaration that Aetna was required to defend and indemnify it with respect to certain costs relating to the "McKin" hazardous waste site near Gray, Maine. On cross-motions for summary judgment, the district court, applying Maine law, ² ruled in favor of Aetna, holding that Aetna had no obligation under the insurance policies to defend or indemnify Johnson in connection with the McKin site. ³ Johnson appeals. We affirm.

Background

Between 1965 and 1978, Richard Dingwell, doing business as the McKin Company, operated a tank cleaning and waste disposal facility near Gray, Maine. Johnson's corporate predecessors, among others, including Atlantic and Titan, generated hazardous wastes in New Hampshire which were disposed of at the McKin site from November, 1974 to September, 1976. The United States Environmental Protection Agency ("EPA") and the Maine Department of Environmental Protection ("DEP") alleged that hazardous wastes which were disposed of at the McKin site contaminated the underlying groundwater, which resulted in contamination of the Gray, Maine water supply system. In 1978, DEP ordered that the McKin site be closed.

In a letter dated November 8, 1985, DEP notified Johnson that it was designating the McKin site an Uncontrolled Hazardous Substance Site pursuant to 38 Me.Rev.Stat.Ann. Secs. 1361-1370. Johnson's predecessors, C.H. Sprague and Son Company ("Sprague") and Atlantic, were included among those who allegedly "arranged for the handling or transport of a pollutant which arrived at the Site and which has been discharged to ground water or other waters of the State," and were thereby designated potentially responsible parties ("PRPs") pursuant to 38 Me.Rev.Stat.Ann. Secs. 1365, 1362. ⁴ In all, DEP noted that, according to the McKin Company, "more than 300 parties arranged ... for the handling, treatment or disposal of petroleum or industrial chemical wastes or both at the Site since 1965." DEP explained that, pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), 42 U.S.C. Sec. 9601, et seq., a Remedial Investigation and Feasibility Study ("RI/FS") had been completed and approved by EPA, and that DEP and EPA were "in the process of completing final abatement and clean-up plans for the Site." The letter also discussed, in some detail, the circumstances of the site's use as a tank cleaning and waste removal business from approximately 1965 to 1978, and the analyses detecting contamination at the site. See infra.

In a letter dated April 15, 1986, EPA issued a similar letter identifying Titan as a PRP at the McKin site under CERCLA. EPA advised that, under CERCLA Secs. 106(a) and 107(a), responsible parties may be ordered to clean up the site, or may be liable for government expenditures in responding to the site contamination. EPA encouraged Johnson "to undertake voluntary cleanup activities" and stated that, prior to undertaking further remedial activities, "we wish to discuss your voluntary participation, either independently or in concert with other [PRPs], in the measures necessary to remedy the remaining problems presented by the hazardous substances at the site." Finally, the EPA letter, under authority of Section 3007 of the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. Sec. 6927, and Section 104 of CERCLA, 42 U.S.C. Sec. 9604, included extensive document requests relating to wastes disposed of at the McKin site.

After learning that it, by virtue of its predecessors' actions, was a PRP, Johnson joined with a number of other PRPs in a site steering committee to negotiate with DEP and EPA to clean up the site. Negotiations between the governmental entities and the PRPs continued for some time. On May 5, 1988, DEP and EPA filed a complaint in the United States District Court for the District of Maine seeking injunctive relief to abate and remedy the contamination, as well as recovery of response costs which EPA and DEP had incurred at the site. The complaint did not specifically seek "natural resource damages." Aetna asserts, and Johnson does not contest, that this complaint was filed only as a prerequisite to the entry of a Consent Decree on November 2, 1988. This Consent Decree, entered into between EPA and DEP and various PRPs including Johnson, provided for payment of cleanup and oversight costs at the McKin site. Under the Consent Decree, the settling parties paid $3 million to the United States and Maine in settlement of their claims. Johnson was liable for $515,895.51. The Consent Decree contained a covenant by EPA and DEP not to sue for "natural resource damages arising out of the conditions at or originating from the McKin Site." Johnson asserts its total defense costs were $117,107.67.

Independent of response costs, Johnson also paid $271.03 as its share of $6,391.00 needed to repay certain residents of Gray, Maine for the extension of the public water line to their home (the "Humphrey settlement"). According to a July 17, 1986 letter from Roy Hutson (the McKin Site Escrow Account Representative), to the account contributors, EPA's first proposed January 24, 1986 Consent Decree provided that the settling parties' scope of work would include extension of the public water supply to Gray residents in the McKin site area not already provided with public water. Through negotiation with EPA and DEP, the Steering Committee agreed that the Settling Parties would pay for connection of the single residence needing hookup to the public water line in exchange for deletion of any mention of the water line from the Consent Decree.

At issue in this case are Johnson's predecessors' insurance policies. Aetna issued comprehensive general liability ("CGL") insurance policies to Titan for the period from June 8, 1973 through June 8, 1975 and to Atlantic for the period from June 8, 1975 through June 8, 1978, in the amount of $1,000,000.00 per occurrence and in the aggregate, for property damage which occurred during the policy period. Under each of these policies, Aetna agreed to defend the insured against any suit seeking damages arising out of occurrences covered under the policy and agreed to pay any such damages for which the insured might become legally obligated. In addition, each policy included a "pollution exclusion" excluding damages resulting from pollution except where such pollution is "sudden and accidental." ⁵ Upon learning that DEP and EPA had identified Johnson's predecessors as PRPs, Johnson, by letter dated January 31, 1986, instructed Pilot Insurance Agency, its former broker, to notify Aetna and to demand that Aetna defend and indemnify Johnson in connection with the McKin proceedings.

The district court properly determined, (and the parties do not dispute), that under Maine law, Aetna's obligation to pay on behalf of Johnson "damages because of ... property damage" does not extend to administrative or cleanup costs, which are equitable in nature and do not constitute "damages" within the meaning of CGL insurance. 741 F.Supp. at 303 (citing Patrons Oxford Mutual Insurance Co. v. Marois, 573 A.2d 16, 17 (Me.1990)). Based largely on the affidavit of Lawrence C. Winger (the "Winger affidavit"), counsel to Johnson in this matter, the district court concluded that Johnson's total McKin site contributions included only uninsured cleanup and administrative expenses and did not include natural resource or property damages, other than the de minimis sum paid in the Humphrey settlement. Id. at 304.

Because Aetna's policies included no deductible, however, the district court thereafter went on to determine that Aetna was not obliged to indemnify Johnson for the de minimis Humphrey settlement amount because that liability falls within the policies' "pollution exclusion." The court held that Johnson failed to establish that it could meet its burden to show that the occurrence giving rise to the Humphrey settlement came within the "sudden and accidental" exception to the pollution exclusion. Rather, the district court concluded that there were neither allegations nor evidence in the record sufficient to come within the "sudden and accidental" exception. Id. at 304-05.

Finally, the district court held that Aetna had no duty to defend Johnson in connection with the McKin proceedings. The court relied upon the Maine Supreme Judicial Court's holding that there is no duty to defend where there has been no suit against the insured seeking damages. Marois, 573 A.2d at 20. The court rejected Johnson's contention that the duty to defend was triggered by its receipt of administrative notices designating it a PRP and concluded...