Hartford Acc. & Indem. Co. v. U.S. Fidelity and Guar. Co.

• Decision Date: 30 April 1992
• Docket Number: No. 91-4057,91-4057
• Citation: 962 F.2d 1484
• Parties: , 60 USLW 2747, 22 Envtl. L. Rep. 21,446 HARTFORD ACCIDENT & INDEMNITY COMPANY, a Connecticut corporation, Plaintiff/Counter-Claim Defendant/Appellee, v. U.S. FIDELITY AND GUARANTY COMPANY, a Maryland corporation; Commercial Union Insurance Companies, a Massachusetts corporation, Defendants, and El Paso Natural Gas Company, a Delaware corporation, Defendant/Counter-Claimant/Appellant. Interstate Natural Gas Association of America; Insurance Environmental Litigation Association; John Richard Ludbrooke Youell, Amici Curiae.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1484

962 F.2d 1484

35 ERC 1570, 60 USLW 2747, 22 Envtl.

L. Rep. 21,446

HARTFORD ACCIDENT & INDEMNITY COMPANY, a Connecticut

corporation, Plaintiff/Counter-Claim Defendant/Appellee, v. U.S. FIDELITY AND GUARANTY COMPANY, a Maryland corporation;

Commercial Union Insurance Companies, a

Massachusetts corporation, Defendants,

and

El Paso Natural Gas Company, a Delaware corporation,

Defendant/Counter-Claimant/Appellant.

Interstate Natural Gas Association of America; Insurance

Environmental Litigation Association; John

Richard Ludbrooke Youell, Amici Curiae.

No. 91-4057.

United States Court of Appeals, Tenth Circuit.

April 30, 1992.

Alan L. Sullivan (R. Stephen Marshall and William R. Richards, with him, on the briefs), Van Cott, Bagley, Cornwall, & McCarthy, Salt Lake City, Utah, for defendant, counter-claimant/appellant.

Joy L. Clegg (Paul C. Droz, Snow, Christensen & Martineau, Salt Lake City, Utah, and James C. Martin, Crosby, Heafey, Roach & May, Oakland, Cal., with her, on the briefs), Snow, Christensen & Martineau, Salt Lake City, Utah, for plaintiff, counter-claim-defendant, appellee.

Mark D. Colley, M. Roy Goldberg, and Richard P. Holme, Davis, Graham & Stubbs, and John H. Cheatham, III and Jean E. Sonneman, Interstate Natural Gas Ass'n of America, Washington, D.C., on the brief, for amicus curiae Interstate Natural Gas Ass'n of America.

Thomas W. Brunner, Marilyn E. Kerst, and Sharon Rau Dissinger, Wiley, Rein & Fielding, Washington, D.C., on the brief, for amicus curiae Ins. Environmental Litigation Ass'n.

David J. Richman, Coghill & Goodspeed, Denver, Colo., on the brief, for amicus curiae John Richard Ludbrooke Youell.

Before MOORE and McWILLIAMS, Circuit Judges, and HUNTER, District Judge. ^*

JOHN P. MOORE, Circuit Judge.

This insurance dispute between El Paso Natural Gas Company and Hartford Accident & Indemnity Corporation involves liability for the cleanup of El Paso's gas transmission system. Hartford brought an action for declaratory relief, and subsequently Hartford and El Paso both moved for summary judgment to determine whether Hartford's comprehensive general liability insurance excluded coverage of continuous pollution. The District Court for the District of Utah found the pollution exclusion clause precluded coverage for pollution except when discharges were both sudden and accidental. Hartford Accident & Indem. Corp. v. United States Fidelity & Guar. Co., 765 F.Supp. 677 (D.Utah 1991) (Hartford v. USF & G ). The court awarded summary judgment to Hartford, finding "sudden and accidental" was unambiguous and meant occurring without notice and happening by chance. Id. at 680. El Paso appeals the court's grant of summary judgment to Hartford and denial of El Paso's summary judgment motion. ¹ We construe "sudden and accidental" under Utah law to mean temporally abrupt and unexpected or unintended, and affirm the district court's judgment that continuous or routine discharges of pollutants are not covered.

I. Facts

From 1959 to 1974, El Paso operated a gas transmission system traversing Washington, Oregon, Idaho, Wyoming, Utah, Colorado, and New Mexico. While operating the system, El Paso used an air compressor lubricating oil later found to have contained a polychlorinated biphenyl (PCB). El Paso dumped condensed liquid wastes containing PCBs into unlined earthen pits, and directly onto the ground. Lubricant containing PCBs was deposited in the same way. Some of the pits had overflow pipes which carried the contaminated wastes into the surrounding environment.

Hartford insured El Paso under a general liability policy from January 1, 1976, to January 1, 1986. El Paso sold the pipeline system to Northwest Pipeline Corporation in 1974, agreeing to indemnify Northwest for any liability arising from El Paso's activities prior to the transfer. In 1987, Northwest discovered the PCB contamination and reported it to the Environmental Protection Agency. Northwest cleaned the contaminated sites pursuant to consent orders with the EPA, sued El Paso, and settled for $6.6 million. El Paso then demanded indemnification from Hartford under its comprehensive general liability policy. Hartford refused and brought this declaratory judgment action against El Paso on the grounds the policy's pollution exclusion precluded coverage of contamination that was not both sudden and accidental. ²

II. Jurisdiction and Standard of Review

We have diversity jurisdiction, 28 U.S.C. § 1332(a)(1), and we apply Utah substantive law. See Erie R.R. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938). We review the district court's construction of the contract as an issue of law de novo. Salve Regina College v. Russell, --- U.S. ----, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991). See also Adams-Arapahoe Joint Sch. Dist. No. 28-J v. Continental Ins. Co., 891 F.2d 772, 774 (10th Cir.1989). When an insurance policy is equivocal, it must be interpreted in favor of the insured. In the absence of ambiguity, however, "an unambiguous insurance contract, like any other contract, should be enforced as written." Young v Fidelity Union Life Ins. Co., 597 F.2d 705, 707 (10th Cir.1979). Whether ambiguity exists is a question of law. Crowther v. Carter, 767 P.2d 129, 131 (Utah App.1989). We accord insurance terms their ordinary usage and connotations, being "obliged to assume that language included therein was put there for a purpose, and to give it effect where its meaning is clear and unambiguous." Marriot v. Pacific Nat'l Life Assurance Co., 24 Utah 2d 182, 467 P.2d 981, 983 (1970).

III. The Policies

Hartford's general liability policies provided Hartford would pay "on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which the insurance applies, caused by an occurrence...." "Occurrence" was defined as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." (emphasis added).

The policies each contained a "pollution exclusion" providing insurance would not cover:

bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon the land, the atmosphere or any watercourse or body of water; but this exclusion, except with respect to coastal waters, does not apply if such discharge, dispersal, release or escape is sudden and accidental.

(emphasis added).

The parties agree El Paso was unaware its lubricating oil contained PCB contaminants. El Paso intentionally discharged oil and water into disposal pits; it did not expect or intend that water in or leaving the pits would contain PCBs. The parties dispute the construction of the contract, and specifically how to apply "sudden and accidental" to a "discharge, dispersal, release or escape" of pollutants.

El Paso argues (1) "sudden and accidental" is ambiguous, and ambiguities in insurance contracts are construed in favor of the insured; (2) "sudden and accidental" means "unexpected or unintended," and since it did not expect or intend PCB contaminants to migrate into the environment, the damage is insured; and (3) "sudden and accidental" relates not to the initial and continuous discharges of its waste material but to the resulting unintended PCB damage. El Paso also contends the history of comprehensive general liability policies demonstrates only intentional polluters were to be excluded from coverage.

Hartford answers "sudden and accidental" (1) is unambiguous and necessarily implies temporality, and (2) relates to El Paso's routine discharges and not to the damage caused by the discharged waste. Hartford argues El Paso's intentions and knowledge of PCB contamination are immaterial, and the discharge itself must be both unexpected or unintended (accidental) and abrupt or immediate (sudden). Hartford further argues El Paso's documentation through extrinsic evidence of the intentions of the insurance industry in drafting the pollution exclusion is irrelevant because the policy is clear on its face.

A. Sudden and Accidental

Liability for continuous polluting events is the subject of intense national debate, and there is a wide range of authority to which both parties have cited. The Utah Supreme Court has not yet considered the meaning of "sudden and accidental" in the context of the pollution exclusion. In such a case of first impression, our responsibility is to give the clause the interpretation we believe the Utah court would. We are informed by decisions of the Utah appellate courts and by precedent of federal courts in this and other circuits. ³ We review the district court's interpretation of Utah law de novo. Salve Regina, 111 S.Ct. at 1221.

Most courts agree "accidental" means unexpected or unintended. In American Motorists Ins. Co. v. General Host Corp., 946 F.2d 1482 (10th Cir.1991), construing Kansas law, we noted "[t]here is a sharp division of authority on the issue of whether pollution that occurs over an extended period of time is 'sudden' within the meaning of the pollution exclusion.... However, we have found no similar division of authority concerning the meaning of the term 'accidental.' The courts have interpreted 'accidental' to refer to pollution which is not expected or intended by the insured." Id. at 1486. ⁴ Similarly, in EAD Metallurgical, Inc. v. Aetna Casualty & Sur. Co., 905 F.2d 8 (2d Cir.1990), where EAD continuously deposited radioactive substances into sewer lines in a New York town, the court stated pollution damage "resulting from purposeful conduct, cannot be considered 'accidental.' " Id. at 11 (citing Powers Chemco, Inc. v. Federal Ins. Co., 74 N.Y.2d 910, 549 N.Y.S.2d 650, 548 N.E.2d 1301 (1989)). See also Great...