American Motorists Ins. Co. v. General Host Corp., 88-1503

• Decision Date: 21 March 1991
• Docket Number: No. 88-1503,88-1503
• Parties: , 59 USLW 2648 AMERICAN MOTORISTS INSURANCE COMPANY, Plaintiff-Appellee, v. GENERAL HOST CORPORATION & American Salt Company, Inc., Defendants-Appellants.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1482

946 F.2d 1482

33 ERC 2047, 59 USLW 2648

AMERICAN MOTORISTS INSURANCE COMPANY, Plaintiff-Appellee, v. GENERAL HOST CORPORATION & American Salt Company, Inc. Defendants-Appellants.

No. 88-1503.

United States Court of Appeals, Tenth Circuit.

March 21, 1991.

John Logan O'Donnell, of Olwine, Connelly, Chase, O'Donnell & Weyher, New York City (Michael L. Spafford and Rodney M. Zerbe, of Olwine, Connelly, Chase, O'Donnell & Weyher, New York City, and Thomas D. Kitch and Ron Campbell, of Fleeson, Gooing, Coulson & Kitch, Wichita, Kan., with him on the briefs), for defendants-appellants.

Timothy C. Russell, of Drinker Biddle & Reath, Washington, D.C. (Patricia A. Gotschalk and S. Elizabeth Doran, of Drinker Biddle & Reath, Washington, D.C., and M. Kathryn Webb of Morrison, Hecker, Curtis, Kuder & Parrish, Wichita, Kan., with him on the brief), for plaintiff-appellee.

Terry W. Schackmann, James T. Price, and Stephanie A. Matthews, of Spencer Fane Bitt & Browne, Kansas City, Mo., filed a brief for amici curiae American Petroleum Institute, Texas Instruments, Inc., Maremont Corp., McDonnell Douglas Corp., and Allied Signal Inc.

Thomas W. Brunner, James M. Johnstone, and Robert R. Lawrence, of Wiley, Rein & Fielding, Washington, D.C., filed a brief for amicus curiae Ins. Environmental Litigation Ass'n.

Before McKAY and EBEL, Circuit Judges, and WEST, District Judge. ^*

EBEL, Circuit Judge.

This case involves a dispute over the scope of coverage under four general liability insurance policies issued by plaintiff-appellee American Motorists Insurance Company ("AMICO") to defendants-appellants American Salt Company, Inc. and General Host Corporation (American Salt's corporate parent) for the period from November 1, 1981, to June 15, 1985. Defendants appeal from the district court's July 28, 1987 order declaring that AMICO has no obligations under those policies to indemnify defendants for the costs of defending, or for any damages awarded in, Miller v. Cudahy Co. and Brothers v. American Salt Co.--two underlying actions brought against defendants by neighboring landowners and lessees for losses suffered as a result of pollution caused by American Salt's business operations in Lyons, Kansas.

The following issues are raised on appeal: (1) whether the district court erred in granting summary judgment in favor of AMICO based on the collateral estoppel effect of findings of fact made in Miller; (2) whether the district court erred in concluding that there was no "occurrence" within the meaning of the insurance policies issued by AMICO; (3) whether the district court erred in granting summary judgment in favor of AMICO based on the pollution exclusion clause contained in the policies issued by AMICO; (4) whether the district court erred in concluding that AMICO had no duty to defend in Miller; (5) whether the district court erred in concluding that AMICO had no duty to defend or indemnify defendants in Brothers; and (6) whether the district court erred in not severing the claims against the two insureds, as allegedly required under the policies issued by AMICO. Because we conclude that the pollution at issue in both Miller and Brothers was not "accidental," we affirm the July 28, 1987 order of the district court granting summary judgment in favor of defendants. 667 F.Supp. 1423.

Facts

This case concerns claims by neighboring landowners and lessees situated adjacent to American Salt's salt mining plant in Lyons, Kansas, for losses resulting from groundwater contamination caused by American Salt's operation of the plant. In 1977, more than forty landowners and lessees filed suit against Cudahy Company (of which American Salt was an operating division) and General Host Corporation (Cudahy's parent company). The neighbors were awarded $3.06 million in actual damages for the period from 1975 through 1983 and were awarded $10 million in punitive damages. This court affirmed the damages award on appeal (although the district court's award of certain post-trial expert witness fees was reversed). Miller v. Cudahy Co., 858 F.2d 1449, 1458 (10th Cir.1988), cert. denied, 492 U.S. 926, 109 S.Ct. 3265, 106 L.Ed.2d 610 (1989).

The second underlying action, Brothers v. American Salt, No. 84-1637-T (D.Kan. Dec. 18, 1989), was filed in 1984. The complaint filed in Brothers contained the following three causes of action: (1) an action for continued "inability to grow irrigated crops," Addendum of Defendants-Appellants, Exh. E, at 2; (2) an action for "damage to dryland crops," resulting from a process known as "capillary action," Id. at 3, p 2; ¹ and (3) an action for "wanton failure to abate" the pollution. ² That case was eventually settled and was dismissed by the district court pursuant to Fed.R.Civ.P. 41(a)(1)(ii) in an order dated December 18, 1989. The district court in this case characterized Brothers as involving "essentially the same claims" as those raised in Miller. American Motorists Ins. Co. v. General Host Corp., 667 F.Supp. 1423, 1425 (D.Kan.1987).

In 1984, AMICO filed this action against General Host and American Salt, seeking a declaratory judgment that it had no duty to defend or indemnify defendants for the groundwater contamination claims asserted in Miller and Brothers. On July 28, 1987, the district court issued an order granting summary judgment in favor of AMICO. The district court noted that the insurance policies contained an exclusion for damages caused by pollution, and that the exception to that exclusion for "sudden and accidental" discharges was not applicable to this case. The district court concluded that the language of the exclusion and its exception is "clear and plain," and that "[n]o use of the word 'sudden' or 'suddenly' could be consistent with an event which happened gradually or over an extended period of time...." Id. at 1428-29. The district court also concluded that coverage was barred because the policies covered only events that were not "expected or intended" by defendants. The court held that defendants "expected or intended" the damage to the landowners' property because, for many years, defendants knew that American Salt's operation at the Lyons, Kansas salt plant was resulting in considerable salt pollution. Id. at 1430.

The district court dismissed all of defendants' counterclaims on the ground that the summary judgment order rendered the counterclaims moot. Defendants filed a motion pursuant to Fed.R.Civ.P. 59(e) requesting the district court to vacate its prior orders. The district court denied that motion and entered final judgment. Defendants then appealed.

Discussion

We review the district court's order granting summary judgment de novo, applying the same standard as the district court under Fed.R.Civ.P. 56(c). Abercrombie v. City of Catoosa, 896 F.2d 1228, 1230 (10th Cir.1990). Rule 56(c) provides that summary judgment is appropriate only if "there is no genuine issue as to any material fact and ... the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). We review the record in the light most favorable to the nonmoving party. Id.

The insurance policies at issue provide coverage for bodily injury or property damage caused by an "occurrence," which is defined as "an accident or a happening or event or a continuous or repeated exposure to conditions which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured." Addendum of Defendants-Appellants, Exh. C, Amendatory Endorsement 1, at 1 (emphasis added). The policies at issue also contain a standard-form pollution exclusion, which provides in relevant part:

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

Addendum of Defendants-Appellants, Exh. C, at 3, 5 (emphasis added).

I. Preclusive Effect of Findings Made in the Miller Case

Defendants make a general challenge to the district court's decision to accord preclusive effect to the findings of fact made in Miller. In particular, defendants argue that Kansas collateral estoppel law applies here and that Kansas law, unlike federal law (see Parklane Hosiery v. Shore, 439 U.S. 322, 329, 99 S.Ct. 645, 650, 58 L.Ed.2d 552 (1979)), does not permit the nonmutual use of collateral estoppel--in which a plaintiff seeks to preclude a defendant from relitigating issues which the defendant previously had litigated and lost against another plaintiff. See Adamson v. Hill, 202 Kan. 482, 449 P.2d 536, 539-40 (1969).

At the present time, there appears to be some doubt within the Tenth Circuit as to whether federal or state rules of collateral estoppel, i.e., issue preclusion, apply in successive diversity actions. In Federal Ins. Co. v. Gates Learjet Corp., 823 F.2d 383, 386 (10th Cir.1987), this court implicitly recognized that state law is to be applied in cases involving issue preclusion. However, less than one year later, the court in Petromanagement Corp. v. ACME-Thomas Joint Venture, 835 F.2d 1329 (10th Cir.1988), adopted the language of the Second Restatement of Judgments, which holds that "the basic rules of claim and issue preclusion.... should be determined by a federal rule." Id. at 1333 (quoting Restatement (Second) of Judgments (1982) § 87 comment b, at 317).

Because Petromanagement involved claim preclusion--not issue preclusion--at least one court has attempted to reconcile these two cases by concluding that federal law applies for claim preclusion and state law applies for issue preclusion. Columbia Cas. Co. v. Playtex FP, Inc., 584 A.2d 1214 (Del.Supr.Ct.1991)...