Ray Industries, Inc. v. Liberty Mut. Ins. Co.

• Decision Date: 27 October 1992
• Docket Number: 90-2220,Nos. 90-2152,s. 90-2152
• Citation: 974 F.2d 754
• Parties: , 23 Envtl. L. Rep. 20,145 RAY INDUSTRIES, INC., Plaintiff-Appellee, Cross-Appellant, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant-Appellant, Cross-Appellee.
• Court: U.S. Court of Appeals — Sixth Circuit

Page 754

974 F.2d 754

61 USLW 2168, 23 Envtl. L. Rep. 20,145

RAY INDUSTRIES, INC., Plaintiff-Appellee, Cross-Appellant, v. LIBERTY MUTUAL INSURANCE COMPANY, Defendant-Appellant, Cross-Appellee.

Nos. 90-2152, 90-2220.

United States Court of Appeals, Sixth Circuit.

Argued May 15, 1992.

Decided Sept. 10, 1992.

Rehearing and Rehearing En Banc

Denied Oct. 27, 1992.

Darlene Domanik (briefed), Kurtis T. Wilder, Robert C. Davis, Jack D. Shumate (argued), Butzel, Long, Gust, Klein & Van Zile, Detroit, Mich., Henry G. Kolb, Skokie, Ill., for Ray Industries, Inc.

Sandra A. Prokopp, Beresh & Prokopp, Novi, Mich., Lee H. Glickenhaus (argued and briefed), Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, Boston, Mass., for Liberty Mut. Ins. Co.

Laura A. Foggan (briefed), Carol Barthel, Thomas W. Brunner, Wiley, Rein & Fielding, Washington, D.C., Insurance Environmental Litigation Ass'n, amicus curiae.

William F. Greaney, and Curtis A. Bradley (briefed), Covington & Burling, Washington, D.C., American Petroleum Institute amicus curiae, American Fiber Manufacturers Ass'n, amicus curiae, Chemical Manufacturers Ass'n, amicus curiae, International Business Machine Corp., amicus curiae, Olin Corp., amicus curiae.

Before: RYAN, BOGGS, and BATCHELDER, Circuit Judges.

BOGGS, Circuit Judge.

Under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA), 42 U.S.C. §§ 9601 et seq., the Environmental Protection Agency may notify "potentially responsible parties" (PRPs) that they may be held responsible for the full cost of cleaning up a hazardous waste site. When the PRPs turn to their insurers for indemnification and defense, they are often refused. As a result, the courts have recently faced many cases concerning the scope of coverage provided to PRPs by insurance contracts. This case is another in that series, requiring us to resolve a number of disputes arising between a PRP and its insurer under Michigan law.

I

The parties have stipulated to most of the facts in this case. From 1938 to 1979, Liberty Mutual Insurance Company provided comprehensive general liability insurance to Ray Industries, Inc., and its subsidiaries, under a series of policies. Although neither party has produced copies of any of the policies for the years 1966 to 1971, or of several policies issued between 1971 and 1979, they agree that the policies from 1966 to 1979 provided, in relevant part, as follows:

[Liberty] will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of

Coverage A. bodily injury or

Coverage B. property damage

to which the policy applies, caused by an occurrence, and [Liberty] shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but [Liberty] shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the company's liability has been exhausted by payment of judgments or settlements.

The policies define an "occurrence" 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."

Ray believed that these policies covered damage due to pollution. However, in 1971, Liberty added the following provision to its policies:

This policy does not apply.... to 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 land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental....

(emphasis added). Ray has submitted affidavits stating that it never knew of any change in its protection after 1971.

During the time period relevant to this lawsuit, Sea Ray Boats, Inc., a subsidiary of Ray's that was covered by Liberty's policies, operated a boat manufacturing plant in Oxford, Michigan. The plant generated various types of waste, including barrels or drums that had contained substances used in the manufacturing process. Although most of these discarded barrels were empty, some of them contained resinous material now suspected of contaminating the landfill. From 1966 to 1972, Sea Ray disposed of some of its waste by hauling it directly to the Metamora Landfill located in Metamora Township, Michigan; from 1972 to 1979, Bushman's Disposal, Inc., took Sea Ray's waste to the Metamora Landfill. However, Sea Ray had no knowledge of or control over Bushman's or Metamora's treatment of its waste. Metamora also accepted drums containing industrial waste from many sources other than Sea Ray between 1966 and late 1979.

The barrels taken from Sea Ray were originally dumped at the open face of the landfill or at the outer edge of an excavated area. Metamora employees used a front-end loader to push the barrels to their desired location, and then used a machine known as a "Trash Master" to crush the barrels. The Trash Master weighed at least twenty-seven tons and had six-inch metal spikes on its wheels; it sometimes tore the barrels apart and spilled their contents. Metamora's owner eventually grew annoyed at the mess caused by these barrels and began having some of them placed in a separate area. Metamora employees regularly pushed the barrels together, covered them with earth, and packed them down by running a front-end loader over them. Metamora then made a special effort to keep heavy machinery off the burial site. Although it was thought that packing earth around the barrels would prevent them from breaking, these operations may have had the opposite effect. In fact, an expert witness for Ray believes that Metamora's actions probably crushed many of the barrels, thereby releasing their contents.

In 1972, a fire burned for several days in a drum disposal area of the landfill. During the course of the fire, Metamora operators saw approximately ten drums of waste explode. However, there is no evidence that any of Sea Ray's drums were involved in this fire. The Metamora Landfill closed in 1980. Approximately five years later, Sea Ray received a letter from the EPA, informing Sea Ray that the EPA regarded it as a PRP that might be held jointly and severally liable for all costs incurred in studying and cleaning up Metamora.

A dispute subsequently arose between Liberty and Ray regarding Liberty's obligations in relation to Ray's responses to the EPA's actions. On August 19, 1988, Ray filed a complaint for declaratory judgment against Liberty in federal district court; federal jurisdiction is premised on diversity, and both parties agree that Michigan law governs this case. Ray seeks a declaration that its policies with Liberty cover all the costs of defense and indemnification resulting from the EPA's action. Liberty denies that the policies cover such a case. After conducting discovery and submitting stipulated facts, both parties moved for summary judgment. The district court ruled on these motions on December 1, 1989. It ruled (1) that the PRP letter triggered Liberty's duty to defend Ray, and (2) that the events leading to the release of Sea Ray's waste constituted an "occurrence" that was covered by the policies in question. However, it also held (3) that because the pollution exclusion clause appeared in policies issued on or after July 1, 1971, the policies only covered contamination caused before that date. It thus rejected Ray's argument that the exclusion should not apply to contamination after that date because the contamination had been "sudden and accidental." Ray Indus., Inc. v. Liberty Mut. Ins. Co., 728 F.Supp. 1310 (E.D.Mich.1989).

On February 7, 1990, Liberty moved for renewed discovery and reconsideration. To protect its appellate rights while this motion was pending, Liberty filed a Notice of Appeal on March 2, 1990. Ray filed a Notice of Cross-Appeal on March 14, 1990. This court determined that appeals were premature and remanded the case to the district court. On July 11, 1990, Liberty filed a "Motion with Regard to Trigger of Coverage and Apportionment of Defense and Indemnity Costs" in which it argued: (1) that Ray was covered only by the policy in effect when the contamination at Metamora manifested itself, and (2) that Liberty was obliged only to pay a certain percentage of Ray's defense and indemnity costs. After a hearing on August 13, 1990, the district court denied this motion by an order issued on September 10, 1990. Both sides then filed notices of appeal. Liberty moved to stay proceedings in this court until the Michigan Supreme Court ruled on the appeals in Polkow v. Citizens Ins. Co. of Am., 438 Mich. 174, 476 N.W.2d 382 (1991), and Upjohn Co. v. New Hampshire Ins. Co., 438 Mich. 197, 476 N.W.2d 392 (1991). These decisions were issued on August 26, 1991, and the parties then proceeded with their appeals.

II

Under the rule established in Erie R.R. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938), a federal court deciding a diversity case under state law must apply the law of the state's highest court. However, "[i]f the highest court has not spoken, the federal court must ascertain from all available data what the state law is and apply it." Bailey v. V & O Press Co., 770 F.2d 601, 604 (6th Cir.1985). "[W]e are mindful that an intermediate appellate court's judgment that announces a rule of law is 'a datum for ascertaining state law which is not to be disregarded by a federal court unless it is convinced by other persuasive data that the highest court of the state would decide otherwise.' " FL...