Alabama Plating Co. v. U.S. Fidelity and Guar. Co.

CourtSupreme Court of Alabama
Citation690 So.2d 331
Decision Date20 December 1996

Page 331

690 So.2d 331
43 ERC 1897
Supreme Court of Alabama.
Dec. 20, 1996.

Rehearing Overruled Feb. 21, 1997.

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Hewitt L. Conwill of Conwill & Justice, P.C., Columbiana, Thomas H. Brown of Harris & Brown, P.C., Birmingham, and Eugene R. Anderson, John W. Fried and Joan L. Lewis of Anderson, Kill, Olick & Oshinsky, P.C. (that firm name was changed during these proceedings, to Anderson, Kill & Olick, P.C.), New York City, for Appellants.

Clarence M. Small, Jr., Deborah Alley Smith and Susan S. Hayes of Rives & Peterson, P.C., Birmingham, for Hilb, Rogal and Hamilton Company of Birmingham, Inc.

James B. Rossler and W. Perry Hall of Stout & Rossler, Mobile, for Safety National Casualty Corporation.

Keri Donald Simms (C. Peter Bolvig later substituted), of McDaniel, Hall, Conerly & Lusk, P.C., Birmingham, for Ranger Insurance Company.

Walter J. Andrews, Frank Winston, Jr., Dale E. Hausman and John C. Yang of Wiley, Rein & Fielding, Washington, DC, Thomas A. Woodall of Woodall & Maddox, Birmingham, C. William Gladden of Gladden & Sinor, Birmingham (on second rehearing application), and Sterling G. Culpepper, Jr., David R. Boyd and Robin G. Laurie of Balch & Bingham, Montgomery, for United States Fidelity and Guaranty Company.

Edward Zampino, Peter E. Mueller and Victor C. Harwood III of Harwood Lloyd, Hackensack, NJ, and George M. Van Tassel, Jr. of Sadler, Sullivan, Sharp, Fishburne & Van Tassel, Birmingham, for Amicus Curiae Aetna Casualty and Surety Company, in support of United States Fidelity and Guaranty Company.

Forrest S. Latta of Pierce, Carr, Alford, Ledyard & Latta, P.C., Mobile, for Amicus Curiae Insurance Environmental Litigation Ass'n, on behalf of certain member companies of IELA.

On Application For Rehearing


The opinion of August 30, 1996, is withdrawn and the following opinion is substituted therefor.

The plaintiffs, Alabama Plating Company and J.M. Rowe, Jr., its president (collectively

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"Alabama Plating"), appeal from summary judgments in favor of the defendant insurers, United States Fidelity and Guaranty Company ("USF & G"), Safety National Casualty Corporation ("Safety"), Ranger Insurance Company ("Ranger"), and in favor of Hilb, Rogal and Hamilton Company of Birmingham, Inc. ("HRH"). Although Alabama Plating's amended complaint alleged more than 30 counts against the defendants, the major issue involved in this appeal is simply whether Alabama Plating is covered under the defendants' insurance policies for certain sums it has expended and will be forced to expend for environmental remediation ordered by the Alabama Department of Environmental Management ("ADEM").

Alabama Plating has operated a metal finishing business in Vincent, Alabama, from the 1950's to the present. Until 1986, Alabama Plating's business included an electroplating operation. The electroplating process created a liquid byproduct containing cadmium, chromium, cyanide, and zinc; its current operations create no such byproducts. In accordance with instructions from the relevant environmental protection authority--the United States Army Corps of Engineers, the Alabama Water Improvement Commission, and then ADEM--Alabama Plating directed its wastewater through a mechanical treatment system, into containment ponds where the metals would settle out, and then directed the treated wastewater to a small stream for which ADEM had issued it a discharge permit. Although Alabama Plating followed the directives of the authorities, environmental contamination occurred. Since 1986, ADEM has issued several administrative orders requiring environmental remediation by Alabama Plating. A 1986 order related to the cleanup of sediment from a section of the stream bed where metals had accumulated as a result of an incident where the water treatment system failed to function properly. ADEM orders in 1990 and 1991 related to delays in Alabama Plating's efforts to complete cleanup of contaminated groundwater and to close the containment ponds.

In June 1991, Alabama Plating made a demand for insurance coverage for its costs of complying with the ADEM orders, under its comprehensive general liability ("CGL") policies with USF & G and under its excess liability policies with Safety and Ranger. All the insurers denied coverage. Alabama Plating sued the insurers on theories of breach of contract, bad faith, fraudulent misrepresentation, and other theories related to the alleged wrongful denial of coverage. Alabama Plating also sued HRH, the insurance agency through which it had obtained its insurance coverage, alleging negligence and fraudulent misrepresentation.

I. The USF & G CGL Policy and Breach of Contract

Because the existence of a contractual duty on the part of USF & G to provide insurance coverage is the foundation of Alabama Plating's claims, we address that question first. The broad insuring clause of the standard-form CGL policy states:

"The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of



"to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such ... property damage, even if any of the allegations of the suit are groundless, false or fraudulent."

(Emphasis added.) The policy defines 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." Accordingly, the focus of the definition of "occurrence" is whether the insured, in this case Alabama Plating, expected or intended that its manufacturing operations would cause the property damage alleged in the ADEM orders, the soil and groundwater contamination. Under Alabama law, this inquiry is a subjective test, Haisten v. Audubon Indem. Co, 642 So.2d 404 (Ala.1994), and Alabama Plating has presented substantial evidence that it did not

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expect or intend that its manufacturing process would cause the property damage at issue. 1

A. The "Pollution Exclusion" and its "Sudden and Accidental" Exception

One of the bases for USF & G's denial of insurance coverage to Alabama Plating is the so-called "pollution exclusion" clause that the insurance industry uniformly added to CGL policies beginning in the early 1970's. USF & G argues that the clause eliminates insurance coverage for Alabama Plating as a matter of law. The qualified exclusion clause states:



"(f) to ... 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 watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental."

(Emphasis added.)

Although this Court has previously considered appeals involving the above-quoted exclusion, we have not addressed the meaning of the "sudden and accidental" exception to the exclusion, which reinvokes coverage that the prior language of the clause excludes. USF & G argues that the "sudden and accidental" exception provides coverage only where the pollution contamination was caused by an abrupt, short-lived event. Alabama Plating argues that the phrase "sudden and accidental" in the exception is ambiguous in meaning, and it makes several arguments supporting the proposition that "sudden and accidental" should be interpreted in favor of the policyholder to mean "unexpected and unintended."

First, we note that Hicks v. American Resources Ins. Co., 544 So.2d 952 (Ala.1989), cited by USF & G, is of no assistance. The meaning of the "sudden and accidental" exception to the pollution exclusion was not raised in that appeal. We also find no guidance from Koch v. State Farm Fire & Cas. Co., 565 So.2d 226, 231 (Ala.1990), where we interpreted the phrase "sudden and accidental" appearing in an exception to an exclusion in a homeowner's policy to mean "immediate and accidental." Our interpretation was driven by the fact that the homeowner's policy at issue was written with an overall structure intended to exclude coverage for gradually occurring damage. In contrast, the overall structure of a CGL policy provides coverage for gradual, repeated conditions. Thus, a CGL policy provides a context in which to interpret the phrase "sudden and accidental" that is very different from the context in which the homeowner's policy in Koch was interpreted.

A narrow majority of state supreme courts that have considered the meaning of the "pollution exclusion," including the Supreme Courts of Indiana and Oregon this year, have held that the "sudden and accidental" exception is ambiguous and must be construed in favor of the policyholder to provide coverage where migration of contaminants into the soil or groundwater was "unexpected and unintended." 2 We agree and,

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thus, adopt the majority position, which we consider to be the better reasoned approach.

At a minimum, the word "sudden" is ambiguous. It may refer to an event that is unexpected, or to one that happens quickly or abruptly. Dictionaries, particularly those published around 1970, when the "pollution exclusion" clause was first added to CGL policies, reveal two differing definitions for "sudden," with the primary meaning being "unexpected." 3 Given this ambiguity in the "pollution exclusion," we look to extrinsic evidence of the drafter's intent.

Before the addition of the so-called "pollution exclusion" to "occurrence"-based CGL policies in the early 1970's, it was clear that the policies provided...

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