AGENCY OF NAT. RES. v. GLENS FALLS INS.

• Decision Date: 25 June 1999
• Docket Number: No. 98-073.,98-073.
• Citation: 736 A.2d 768
• Parties: AGENCY OF NATURAL RESOURCES, STATE OF VERMONT v. GLENS FALLS INSURANCE CO., Continental Insurance Co., Liberty Mutual Insurance Co. and Tamarack Services of South Burlington.
• Court: Vermont Supreme Court

736 A.2d 768

AGENCY OF NATURAL RESOURCES, STATE OF VERMONT v. GLENS FALLS INSURANCE CO., Continental Insurance Co., Liberty Mutual Insurance Co. and Tamarack Services of South Burlington.

No. 98-073.

Supreme Court of Vermont.

June 25, 1999.

Motion for Reargument Denied August 2, 1999.

William H. Sorrell, Attorney General, and William Griffin, Chief Assistant Attorney General, Montpelier, for Plaintiff-Appellee.

William F. Ellis and Kevin J. Coyle of McNeil, Leddy & Sheahan, Burlington, for Defendants-Appellees Glens Falls Insurance Co. and Continental Insurance Co.

Michael B. Clapp, Burlington, for Defendant-Appellant Liberty Mutual Insurance Co.

Present DOOLEY, MORSE and JOHNSON, JJ., NORTON, Supr. J., and GIBSON, J. (Ret.), Specially Assigned

JOHNSON, J.

This case concerns a dispute among the parties and their insurers over the allocation of costs for the cleanup of a series of gasoline leaks. The superior court ruled that Liberty Mutual Insurance Company (Liberty) was responsible for approximately 92% of the costs, that the Continental/Glens Falls Insurance Company (Continental) was responsible for the balance, and that Liberty's counterclaim against the State of Vermont for contribution was without merit. Liberty appeals, contending the court erred in: (1) dismissing its counterclaim against the State; (2) making certain findings concerning the amount of petroleum released and the allocation of remediation costs among the parties; (3) ordering a setoff against Liberty's restitution award from Continental; and (4) declining to award prejudgment interest. Continental has cross-appealed, contending the court erred in rejecting its defenses of waiver, unclean hands, and laches against Liberty's cross-claim for restitution. We reverse and remand on the issue of prejudgment interest, and otherwise affirm.

FACTS

As found by the trial court, the facts were as follows. In 1983, gasoline began to leak from underground storage tanks at Spillane's Service Center on Route 7 in Shelburne, a site owned by Tamarack Services of South Burlington. The leak was discovered in 1985, and shortly thereafter the State ordered corrective action.

The volume of the release was large. Free-product gasoline spread throughout the site and migrated to adjacent properties. Liberty, Tamarack's insurer at the time of the leak, was notified of the release and accepted responsibility for payment of the costs of remediation. Tamarack hired Ground Water Technologies, Inc. (GTI) to monitor contamination levels and perform the cleanup.

Liberty's policy expired in August 1986, at which time Continental became the insurer. Continental's policy, which was renewed in 1987 and 1988, contained several pollution exclusion endorsements. Liberty continued to pay the costs of remediation through this period.

In November 1987, GTI discovered a second release of gasoline at the site consisting of several leaking fuel lines. These were repaired by January 1988. During the summer of 1989, more leaks occurred. The parties presented a variety of expert evidence and opinion at trial relating to the rate, duration, and overall volume of the three releases. The court found that the initial release, which Continental's expert had characterized as "massive," consisted of 11,000 gallons. The court found that the second and third releases, which were much smaller and were discovered relatively quickly through GTI's previously installed monitoring equipment, each consisted of 450 gallons.

Tamarack made no claims under its policies with Continental at the time of the second and third releases, believing that the pollution exclusion clauses precluded coverage. Liberty received actual notice of the third release no later than September 1989, and continued to pay remediation costs until 1990, when it requested that GTI provide an estimate of the remediation costs attributable to releases other than the first release. GTI estimated that approximately $39,291 of the $1,103,587 expended to date could be attributed to the later releases.

In September 1990, Liberty suspended payments pending negotiations with Tamarack and the State regarding allocation of remediation costs. In October, an agreement was reached in which Tamarack agreed to apply to the State's petroleum cleanup fund under 10 V.S.A. § 1941, which authorizes the Secretary of the Agency of Natural Resources to disburse funds for "uninsured costs" of cleanup and restoration of contaminated soil caused by releases of petroleum from underground storage tanks. 10 V.S.A. § 1941(b). Tamarack represented that it was uninsured for the costs of remediating the 1987 and 1989 releases because of the pollution exclusion clauses in its policies with Continental. Following the authorization of payments from the cleanup fund, Liberty agreed to split the costs of future remediation with the State, and the State agreed to pay 50% of past expenses it determined to be reasonable. Negotiations were not successful over what past costs were reasonable.

Later, the State discovered evidence that the pollution exclusion clauses in the Continental policies were invalid because Continental had not obtained timely approval of the clauses from the Department of Insurance. The State thereupon commenced this litigation by filing a complaint against Tamarack, Continental, and Liberty to declare Continental liable under its policies for the 1987 and 1989 releases and to recover the remediation costs paid by the State. Liberty filed a counterclaim against the State on the theory that the State was obligated under the agreement to pay for past expenses allocable to the 1987 and 1989 releases. As the subrogee of Tamarack's rights, Liberty also filed a cross-claim against Continental, seeking reimbursement of past expenses allocable to the 1987 and 1989 releases. Continental asserted certain affirmative defenses against Liberty's cross-claim, and filed a cross-claim against Liberty alleging various causes of action.

Continental subsequently entered into a settlement agreement with Tamarack and the State, in which it agreed to pay $150,000 for past remediation expenses, and to assume responsibility for the State's half of future remediation costs. Continental reserved its right to seek monetary or injunctive relief against Liberty.

The trial court subsequently granted partial summary judgment in favor of the State, ruling that the pollution exclusion clauses in the Continental insurance policies were invalid and that insurance coverage was therefore available to Tamarack under those policies for the cost of remediating the 1987 and 1989 releases. Later, the court granted the State's motion to dismiss Liberty's counterclaim, ruling that the Secretary was authorized to approve expenditures from the fund only for uninsured cleanup costs.

At the conclusion of the trial, the court issued a lengthy written decision, which it subsequently amended, containing extensive and detailed factual findings and conclusions. The court found that there was a "linear relationship" between the total volume of petroleum spilled during the several releases and the total cost of remediation incurred by Liberty and Continental, and calculated the parties' proportional share of liability based upon the percentage of the total spill (11,900 gallons) attributable to the initial release (11,000 gallons) and subsequent releases (900 gallons). In this fashion, the court determined that 7.563% of past and future remediation costs was Continental's responsibility and 92.437% was Liberty's responsibility. Applying these percentages to the total costs of remediation ($2,505,964), the court found that Liberty was entitled to restitution from Continental in the amount of $189,526.05. Having previously paid $189,718.01 toward remediation of the site, Continental was entitled to a credit and refund of $191.96 from Liberty. The court ruled against Continental on its cross-claim against Liberty. This appeal followed.

DISCUSSION

Counterclaim Against State

Liberty contends the court erred in dismissing its counterclaim against the State for enforcement of the State's agreement to pay 50% of the reasonable remediation costs paid by Liberty between November 1987 and December 31, 1990.¹ Liberty also contends the court's order requiring Liberty and Continental to split the future costs of remediation conflicted with Liberty's agreement with the State.

The statute authorizing state expenditures for petroleum cleanup is clear and unambiguous. The Secretary may authorize such expenditures only for "uninsured costs" of pollution cleanup. 10 V.S.A. § 1941(b). The agreement with Liberty to expend state funds was plainly premised upon the representation and understanding that Tamarack was uninsured for the 1987 and 1989 releases, an understanding that later proved to be unfounded. Thus, the court correctly concluded that there was no authority for the State's expenditure of cleanup funds in this case, and properly dismissed Liberty's counterclaim.

Liberty contends, nevertheless, that Tamarack was somehow uninsured at the time the State authorized the expenditures, and only later became insured when the court ruled that Continental's pollution-exclusion clauses were invalid. The court's judgment did not create the insurance coverage, however, but merely declared the existence of coverage under the policies. See 12 V.S.A. § 4711 (courts have power "to declare rights, status and other legal relations"), Robtoy v. City of St. Albans, 132 Vt. 503, 504, 321 A.2d 45, 46 (1974) (function of declaratory judgment is to provide declaration of rights, status and other legal relations). The order dismissing Liberty's counterclaim against the State, and the order requiring Liberty and Continental to split the future costs of remediation, were therefore proper.

Sufficiency of the Evidence

Liberty next contends the evidence failed to support the court's findings concerning the volume of...