Alcoa v. Aetna Cas. & Sur. Co.

• Decision Date: 04 May 2000
• Docket Number: No. 67340-3.,67340-3.
• Citation: 140 Wash.2d 517,998 P.2d 856
• Court: Washington Supreme Court
• Parties: ALUMINUM COMPANY OF AMERICA; and Northwest Alloys, Inc., Appellants, v. AETNA CASUALTY & SURETY COMPANY; Aiu Insurance Company; Allianz Underwriters Insurance Company (formerly known as Allianz Underwriters, Inc.); Allianz Versicherungs-Aktiengesellschaft; Allstate Insurance Company(as successor-in-interest to Northbrook Excess and Surplus Insurance Company which was formerly known as Northbrook Insurance Company); Birmingham Fire Insurance Company of Pennsylvania; Columbia Casualty Company; Commercial Union Insurance Company; Continental Casualty Company; Continental Insurance Company; Employers Insurance of Wausau, a mutual company; Employers Mutual Casualty Company; European General Reinsurance Company of Zurich; Executive Re Indemnity Inc. (formerly known as Eric Reinsurance Company, which was formerly known as American Excess Insurance Company); Federal Insurance Company; Fireman's Fund Insurance Company; First State Insurance Company; Gerling-Konzern Allegemeine Versicherungsaktiengesellschaft; Granite State Insurance Company; Greenwich Insurance Company (formerly known as Harbor Insurance Company); Hartford Accident & Indemnity Company; Highlands Insurance Company; Imperial Casualty & Indemnity Company; International Insurance Company; Lexington Insurance Company; National Casualty Company; National Union Fire Insurance Company of Pittsburgh, Pa; New England Insurance Company; Old Republic Insurance Company; Protective National Insurance Company of Omaha; Ranger Insurance Company; Royal Indemnity Company; Royale Belge S.A.; Three Rivers Insurance Company (in its own right and as successor of Domrisk, Ltd.); Twin City Fire Insurance Company; United Insurance Company; United States Fire Insurance Company; Zurich American Insurance Company of Illinois, Respondents.

998 P.2d 856

140 Wash.2d 517

ALUMINUM COMPANY OF AMERICA; and Northwest Alloys, Inc., Appellants, v. AETNA CASUALTY & SURETY COMPANY; Aiu Insurance Company; Allianz Underwriters Insurance Company (formerly known as Allianz Underwriters, Inc.); Allianz Versicherungs-Aktiengesellschaft; Allstate Insurance Company(as successor-in-interest to Northbrook Excess and Surplus Insurance Company which was formerly known as Northbrook Insurance Company); Birmingham Fire Insurance Company of Pennsylvania; Columbia Casualty Company; Commercial Union Insurance Company; Continental Casualty Company; Continental Insurance Company; Employers Insurance of Wausau, a mutual company; Employers Mutual Casualty Company; European General Reinsurance Company of Zurich; Executive Re Indemnity Inc. (formerly known as Eric Reinsurance Company, which was formerly known as American Excess Insurance Company); Federal Insurance Company; Fireman's Fund Insurance Company; First State Insurance Company; Gerling-Konzern Allegemeine Versicherungsaktiengesellschaft; Granite State Insurance Company; Greenwich Insurance Company (formerly known as Harbor Insurance Company); Hartford Accident & Indemnity Company; Highlands Insurance Company; Imperial Casualty & Indemnity Company; International Insurance Company; Lexington Insurance Company; National Casualty Company; National Union Fire Insurance Company of Pittsburgh, Pa; New England Insurance Company; Old Republic Insurance Company; Protective National Insurance Company of Omaha; Ranger Insurance Company; Royal Indemnity Company; Royale Belge S.A.; Three Rivers Insurance Company (in its own right and as successor of Domrisk, Ltd.); Twin City Fire Insurance Company; United Insurance Company; United States Fire Insurance Company; Zurich American Insurance Company of Illinois, Respondents.

No. 67340-3.

Supreme Court of Washington.

Argued January 27, 2000.

Decided May 4, 2000.

Smith & Leary, John James Leary, Jr., Terrence Lee Fredrickson, Seattle, Amicus Curiae on behalf of Current London First Party Insurer.

Heller, Ehrman, White & McAuliffe, Leonard J. Feldman, Seattle, for Appellants.

Peery, Hiscock, Pierson, Kingman & Peabody, Dale Lawrence Kingman, Arlen Rumsey, Seattle for Respondents.

TALMADGE, J.

We are asked in this case to apply the law of Pennsylvania to resolve disputes between the Aluminum Company of America, its subsidiary Northwest Alloys, Inc. (Alcoa), and 167 insurers regarding insurance coverage for environmental damage under comprehensive general liability (CGL) policies and property insurance policies called differences in conditions (DIC) policies. We accepted direct interlocutory review in this case. RAP 2.2(d); RAP 4.4. We generally affirm the trial court's disposition of the issues in the case, but we reverse the trial court with respect to its treatment of the issues of fortuity, the contractual limitation periods, and the allocation of damages.

FACTS¹

Alcoa is a large, multinational aluminum producing company with industrial locations across the United States and the world. In the ordinary course of its business over the years, Alcoa generated waste products that were stored in on-site disposal facilities, landfills, and lagoons; and sometimes discharged into the property of others. In recent years, federal and state environmental agencies and private parties made claims against Alcoa for the cleanup of groundwater, surface water, and soil contamination at disposal sites, lagoons, landfills, and other such facilities in Washington and around the country, all stemming from Alcoa's disposal of its waste products. Alcoa paid for investigation and remediation of the environmental harm. Alcoa's claims for coverage in this case involved 35 different facilities in 11 different states. Raising a variety of defenses, the insurers denied coverage. Alcoa hereafter filed this declaratory judgment action in the King County Superior Court in December 1992 against 167 insurers seeking coverage for the cost of pollution damage, investigation, and remediation.

The present case was assigned to the Honorable J. Kathleen Learned who was faced with the daunting task of addressing discovery in this large, complex matter, handling numerous dispositive pretrial motions, and ultimately conducting the trial of the issues. Judge Learned did an admirable job of managing this extraordinarily complex case. The trial court determined the law of Pennsylvania applied, largely because Alcoa's headquarters are located in Pittsburgh.² Ultimately, the trial court granted summary judgment motions determining Alcoa had an insurable interest as to groundwater under its property, Alcoa did not have coverage for certain DIC policy claims because the losses were not fortuitous, and Alcoa had no coverage under the CGL policies because the pollution exclusion barred coverage.

In order to streamline pretrial and trial procedure, the trial court designated 3 of the 35 sites at issue—Vancouver, Washington; Massena, New York; and Point Comfort, Texas—as test sites for the trial. Original damage estimates against the DIC insurers for these three sites alone approached $850 million. The trial court, in designating these three sites for trial,

hoped that the parties could focus their discovery on the test sites, develop their respective legal theories, file appropriate dispositive motions, and receive a definitive resolution regarding all of the disputed factual and legal issues surrounding the test sites and that such resolution would provide a basis for settlement, rather than trial, of the remaining first-party [DIC] sites.

Clerk's Papers at 050753.³

The trial involving the three sites was called Phase I; the future Phase II trial is intended to resolve issues arising from the remaining 32 sites. The Phase I trial consisted of two stages. Stage 1 was designed to determine whether the policy jackets the DIC insurers added to the insurance policy Alcoa drafted were part of the insurance contract. That trial lasted three weeks. The jury returned a complete verdict concerning the applicability of policy jackets to the insurance contract. The Stage 2 trial lasted 10 weeks and the jury deliberated for 3 months before returning an incomplete verdict; the jury answered only about one-half of the interrogatories submitted it.

The trial court then certified the case for appeal pursuant to CR 54(b), setting out in detail all of the jury's findings of fact and the trial court's extensive summary judgment orders containing conclusions of law. The trial court certified the case for reasons of judicial economy, concluding, "there must be resolution of the legal standards that will apply" before continuing with trial on the remaining 32 sites. Clerk's Papers at 050755. RAP 2.2(d). Pursuant to RAP 4.4, the Court of Appeals, Division One, transferred the case to us, and we accepted direct review.

ISSUES

1. Did Alcoa have an insurable interest in the groundwater?

2. Did Alcoa's alleged misrepresentations or failure to disclose relevant information to its insurers render the policies void ab initio?

3. Did the trial court correctly grant summary judgment to the insurers on coverage under the CGL policies' pollution exclusion provisions?

4. Did the DIC policies' suit limitation provisions apply?

5. Did the trial court correctly apply the known risk or fortuity defense to the DIC policies?

6. Under the terms of the DIC policies, should the damages be prorated among the years of damage if the environmental harm was indivisible?

ANALYSIS

We begin with the contract formation issues; we then proceed to the coverage questions; we conclude with the issues pertaining to damages.

A. Background to the Insurance Coverages

To understand the issues in this case fully, it is necessary to describe how the parties agreed to the insurance coverage provided and the nature of the coverage obtained. As befits a large, sophisticated, multinational enterprise, Alcoa had its own internal insurance or risk management department. Wishing to procure property insurance for its far-flung operations for the periods 1977-80, 1980-83, and 1983-84, Alcoa prepared "submissions" that described the nature of Alcoa's business, its properties, and the insurance coverages Alcoa sought. Attached to the submissions were "manuscript forms," actual proposed insurance policies prepared by Alcoa and its insurance brokers. The manuscript forms included both CGL and DIC coverages. Large insurance brokerage firms shopped the submissions and manuscript forms to various insurers. The insurers responded with price quotations for the layers of coverage they offered to Alcoa. Upon the placement of coverage, the insurers sent "policy jackets," standard policy language, to the brokers for inclusion in the formal policies.

Ultimately, the first layer of CGL coverage for the period 1977-84 was placed with Commercial Union. Lexington covered the first layer of DIC coverage for 1977-80, but various other insurers provided the initial coverage for 1980-84. Numerous insurers provided excess layers of coverage.

In the mid-1980s, pressed by state and federal regulators to clean up environmental hazards on its own property and elsewhere, Alcoa incurred substantial expenses to remediate these hazards. The essence of the problem with Alcoa's insurance coverage claims here rested with the retroactive liability imposed on potentially responsible parties by CERCLA (Comprehensive Environmental Response, Compensation, and Liability Act of 1980), 42 U.S.C. § 9607(a)(2). See, e.g., Combined Properties/Greenbriar Ltd. Partnership v. Morrow, 58 F.Supp.2d 675 (E.D.Va.1999) (retroactive application of CERCLA does not violate due process). At the time the coverages were placed in this case, it is unlikely any of the parties anticipated CERCLA's imposition of retroactive liability on Alcoa. To compound the complexity of the issues here, a significant portion of the harm was to Alcoa's own...