Northern Ins. Co. of New York v. Aardvark Associates, Inc.

Citation942 F.2d 189
Decision Date08 August 1991
Docket NumberNo. 90-3687,90-3687
Parties, 21 Envtl. L. Rep. 21,350 NORTHERN INSURANCE COMPANY OF NEW YORK, Appellee, v. AARDVARK ASSOCIATES, INC. and Insurance Company of North America, Aardvark Associates, Inc., Appellants.
CourtUnited States Courts of Appeals. United States Court of Appeals (3rd Circuit)

Stephen G. Weil (argued), Joseph D. Tydings (argued), Anderson, Kill, Olick & Oshinsky, Washington, D.C., E. Max Weiss, Culbertson, Weiss, Schetroma & Schug, Meadville, Pa., for appellants.

Thomas W. Brunner (argued), Wiley, Rein & Fielding, Washington, D.C., Richard M. Shusterman (argued), White and Williams, Philadelphia, Pa., Louis C. Long, Meyer, Darragh, Buckler, Bebenek, Eck & Hall, Pittsburgh, Pa., for appellee.

Roger E. Warin (argued), Steptoe & Johnson, Washington, D.C., amicus curiae, for Ins. Environmental Litigation Ass'n.

Before NYGAARD and ALITO, Circuit Judges, and FULLAM, District Judge. *

OPINION OF THE COURT

ALITO, Circuit Judge:

The district court granted summary judgment in favor of two insurance companies and against Aardvark Associates, Inc., a hauler of industrial waste from whom the United States Environmental Protection Agency ("EPA") is seeking to recover costs for cleaning up waste disposal sites. Applying Pennsylvania law, the district court held that long-term pollution at the sites was not covered under Aardvark's general liability policies due to a standard clause excluding coverage for any discharge of pollution that is not "sudden and accidental." 743 F.Supp. 379 (W.D.Pa.). We will affirm.

I.

Aardvark engages in the business of hauling industrial waste from production sites to disposal sites. In 1977 and 1978, Aardvark transported drums of industrial waste from Hughson Chemicals in Seagertown, Pennsylvania, to the Old Mill and New Lyme disposal sites in Ashtabula County, Ohio. Environmental officials discovered discharges of hazardous materials at these sites in 1981 and 1982.

In 1983, the EPA notified Aardvark of its findings at the Old Mill site and informed the company that it had been identified as a "potentially responsible party" liable for response costs under the Comprehensive Environmental Resource, Compensation and Liability Act ("CERCLA"), 42 U.S.C. § 9607(a). The EPA sent a similar notice regarding the New Lyme site in 1985. In 1989, the EPA filed two separate suits in the Northern District of Ohio seeking to recover costs from Aardvark and other parties pursuant to 42 U.S.C. § 9607(a).

After receiving the initial letters from the EPA, Aardvark notified the Insurance Company of North America ("INA"), which had issued Aardvark general liability insurance policies from 1977 to 1981, and Northern Insurance Company of New York ("Northern"), which had issued Aardvark similar policies from 1981 to 1985. All of these policies contained a standard clause that generally excluded coverage for pollution damage. The clause, however, contained an exception to the exclusion "if the discharge, dispersal, release or escape" of pollutants was "sudden and accidental." 1

After investigation, Northern commenced suit against Aardvark and INA in 1986 in the United States District Court for the Western District of Pennsylvania, seeking a declaratory judgment that it was not obligated to provide a defense against or indemnification for the CERCLA claims. Federal jurisdiction was based on diversity of citizenship. INA cross-claimed against Aardvark for a declaratory judgment that it was under no obligation to provide a defense or indemnification. Aardvark filed counterclaims, requesting a declaratory judgment that Northern was obligated to provide a defense and indemnification, as well as other relief.

After all parties moved for summary judgment, the district court granted summary judgment for Northern and INA. Relying primarily on two decisions of the Superior Court of Pennsylvania--Techalloy Co., Inc. v. Reliance Ins. Co., 338 Pa.Super. 1, 487 A.2d 820 (1984), allocatur denied, 338 E.D. Allocatur Dkt. 1985 (Pa. Oct. 31, 1985), and Lower Paxon Township v. United States Fidelity & Guaranty Co., 383 Pa.Super. 558, 557 A.2d 393 (1989), allocatur denied, 93 M.D. Allocatur Dkt. 1989 (Pa. Sept. 22, 1989)--the district court held that the pollution exclusion clause's exception for "sudden and accidental" discharges was limited to discharges that are " 'both sudden, meaning abrupt and lasting only a short time, and accidental, meaning unexpected.' " App. 9, quoting Lower Paxon, 557 A.2d at 399. The court also rejected Aardvark's contention that the pollution exclusion clause applied only to "active" as opposed to "passive" polluters. Applying this interpretation of the pollution exclusion clause, the court held that Aardvark lacked coverage for the CERCLA claims. The court noted that Aardvark bore the burden of establishing that these claims fell within the exception for "sudden and accidental" discharges and that nothing in the summary judgment record showed that the discharges at the two disposal sites had been of that nature. Instead, the court observed, the materials in the record suggested that "the pollution at issue ... ha[d] been gradual, stretching over several years and many separate shipments of waste." App. 6. Aardvark appealed.

II.

A. We turn first to the meaning of the standard pollution exclusion clause's exception for discharges that are "sudden and accidental." 2 The insurance companies contend that the phrase "sudden and accidental" is unambiguous and was properly construed by the district court. Aardvark argues that the phrase is ambiguous and is not limited to discharges that are abrupt but includes discharges that are unintended and unexpected.

These are not new arguments. As Aardvark notes in its brief, disagreement between insureds and insurers concerning the meaning of this provision has precipitated "a legal war ... in state and federal courts from Maine to California." Appellant's Br. at 6. We recently surveyed the resulting jurisprudence and noted that "the authority appears to be evenly divided between the parties' competing constructions of the pollution exclusion clause, with about half of the cases holding that the clause bars coverage, and with the other half holding that it does not." New Castle County v. Hartford Accident and Indemnity Co., 933 F.2d 1162, 1195 (3d Cir.1991). Cogent arguments have been advanced on both sides of this question.

Because this is a diversity case, we must of course apply state substantive law, in this instance the law of Pennsylvania. The Supreme Court of Pennsylvania has not addressed the question before us, but the Superior Court has twice done so. In Techalloy Co., Inc., a general liability insurer refused to defend a personal injury action against an industrial generator of toxic waste. The insurer relied on the standard pollution exclusion clause's exception for "sudden and accidental" discharges. After the Court of Common Pleas held that the insured lacked coverage, the Superior Court affirmed based on the pollution exclusion clause. The Superior Court held that the clause was not ambiguous. 338 Pa.Super. at 13, 487 A.2d at 827. In accordance with well-established Pennsylvania precedent, 3 the court applied the plain meaning of the pollution exclusion clause and ruled that the insured's lengthy history of toxic discharges on a "regular or sporadic" basis could not be viewed as "sudden." 338 Pa.Super. at 13-14, 487 A.2d at 827. The Supreme Court of Pennsylvania denied review. 338 E.D. Allocatur Dkt. 1985 (Pa. Oct. 31, 1985).

The Superior Court discussed the same issue at greater length in Lower Paxon Township, in which the court held that a township's insurance policy containing the same standard pollution exclusion clause did not cover claims based on the release of methane gas from a municipal landfill. Like Aardvark here, the township argued that the phrase "sudden and accidental" is ambiguous and should be construed to mean unexpected or unintended. 383 Pa.Super. at 568, 557 A.2d at 398. Reaffirming Techalloy Co., Inc., the Superior Court rejected this argument. The court stated that the phrase was " 'clear and plain, something only a lawyer's ingenuity could make ambiguous.' " Id. at 402, quoting American Motorists Ins. Co. v. General Host Corp., 667 F.Supp. 1423 (D.Kan.1987). The court wrote that "[a]ny other interpretation of the policy is blatantly unreasonable" and that "[a]cceptance of [the township's] arguments would result in the emasculation of the policy in violation of our duty to enforce it." 383 Pa.Super. at 577, 557 A.2d at 402. Rejecting "lengthy argument and documentary materials concerning the drafting history and regulatory approval" of the pollution exclusion clause (id. at 402 n. 5), the court adhered to what it found to be the plain meaning of the clause, explaining (383 Pa.Super. at 577, 557 A.2d at 402 (emphasis in original)):

To read "sudden and accidental" to mean only unexpected and unintended is to rewrite the policy by excluding one important pollution coverage requirement--abruptness of the pollution discharge. The very use of the words "sudden and accidental" (emphasis added) reveal a clear intent to define the words differently, stating two separate requirements. Reading "sudden" in its context, i.e. joined by the word "and" to the word "accident", the inescapable conclusion is that "sudden", even if including the concept of unexpectedness, also adds an additional element because "unexpectedness" is already expressed by "accident". This additional element is the temporal meaning of sudden, i.e. abruptness or brevity. To define sudden as meaning only unexpected or unintended, and therefore as a mere restatement of accidental, would render the suddenness requirement mere surplusage.

Lower Paxon, 383 Pa.Super. at 577, 557 A.2d at 402 (emphasis in original). Once again, the Supreme Court of Pennsylvania denied review. 93 M.D. Allocatur Dkt. 1989 (Pa. Sept....

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