American States Ins. Co. v. Maryland Cas. Co.

• Decision Date: 03 July 1984
• Docket Number: Civ. A. No. 82-70353.
• Parties: AMERICAN STATES INSURANCE COMPANY, and Indiana Insurance Company, Plaintiff, v. MARYLAND CASUALTY CO., a Maryland Insurance Company; Liberty Mutual Insurance Company, a Massachusetts Insurance Company; Hartford Casualty Insurance Company, a Connecticut Insurance Company; Hartford Accident and Indemnity Company, a Connecticut Insurance Company; Michigan Mutual Insurance Company, a Michigan Insurance Company, and National Drum & Barrel Corporation, a Michigan Corporation, Jointly and Severally, Defendants.
• Court: U.S. District Court — Western District of Michigan

587 F. Supp. 1549

AMERICAN STATES INSURANCE COMPANY, and Indiana Insurance Company, Plaintiff, v. MARYLAND CASUALTY CO., a Maryland Insurance Company; Liberty Mutual Insurance Company, a Massachusetts Insurance Company; Hartford Casualty Insurance Company, a Connecticut Insurance Company; Hartford Accident and Indemnity Company, a Connecticut Insurance Company; Michigan Mutual Insurance Company, a Michigan Insurance Company, and National Drum & Barrel Corporation, a Michigan Corporation, Jointly and Severally, Defendants.

Civ. A. No. 82-70353.

United States District Court, E.D. Michigan, S.D.

July 3, 1984.

Sullivan, Ward & Bone by Gregory I. Thomas, Detroit, Mich., for plaintiff.

Plunkett, Cooney, Rutt, Watters, Stanczyk & Pedersen by Robert S. Cubbin, Detroit, Mich., for defendant Maryland Cas.

Barbier, Goulet & Petersmarck, P.C. by Ralph W. Barbier, Jr., Susan J. Sadler, Mount Clemens, Mich., for defendant Liberty Mut.

Jenkins, Nystrom, Hitchcock & Nystrom by Jeannette A. Paskin, Southfield, Mich., for defendants Hartford Cas. Ins. Co. and Hartford Acc. and Indem. Co.

Joselyn, Rowe, Jamieson, Grinnan, Callahan & Hayes, P.C. by Edward V. Keelean, Detroit, Mich., for defendant Michigan Mut.

Gourwitz & Barr by Benson J. Barr, Bryan H. Levy, Southfield, Mich., for defendant National Drum & Barrel Corp.

OPINION

GILMORE, District Judge.

This is a declaratory judgment action brought by American States Insurance Co. (American States) against its insured, National Drum and Barrel Corp. (National Drum), and National Drum's other insurance carriers, who had issued policies of insurance effective for various periods between 1966 and 1981. The primary issue is which, if any, of the insurance carriers owes National Drum a duty to defend and/or indemnify it in four underlying lawsuits filed in Wayne and Oakland Counties.

For the following reasons, the Court holds that none of the party insurance carriers has a duty to defend or indemnify National Drum.

I

All of the party insurance companies provided general liability coverage to National Drum at various times from July 1966 through November 1981. The individual insurers were on the risk during the following periods:

Liberty Mutual Insurance Co. (Liberty), July 1966 to October 1, 1972;

Hartford Casualty Insurance Co. (Hartford), October 1, 1972 to October 1, 1975; Michigan Mutual Insurance Co. (Michigan Mutual), October 1, 1975 to October 1, 1976;

American States, October 1, 1976 to October 1, 1979;

Maryland Casualty Co. (Maryland Casualty), October 1, 1979 to October 20, 1981.

During the years 1979, 1981 and 1982, National Drum was named as a defendant in four separate lawsuits. These lawsuits will be referred to as the following:

Gustinis, filed in Oakland County on December 21, 1979;

Kozar, filed in Wayne County on January 28, 1981;

Triple G. Land Co., filed in Wayne County on July 6, 1982;

Neal-Ormond Venture, filed in Wayne County on July 6, 1982.

The plaintiffs in these suits alleged generally that National Drum was liable for personal injury and/or property damage arising out of the dumping of toxic waste materials on certain properties located in Michigan, commencing in 1966 and continuing until the time of the filing of the complaints.

Pursuant to a reservation of rights agreement, American States retained counsel to appear and defend National Drum in the four lawsuits. American States also advanced funds to settle three of the four lawsuits. American States has spent approximately $63,288.91 in defense costs to date. The Gustinis case was settled on behalf of National Drum for $5,000, and the Triple G and Neal-Ormund cases were settled together on National Drum's behalf for $1,500. It is plaintiff's contention that the settlement funds were advanced strictly on a cost of defense basis and thus should be considered as a part of the defense costs. The fourth suit, Kozar, was not settled at the time of trial of this matter, but plaintiff nevertheless contends that any funds advanced to settle that suit should likewise be considered as defense costs.

II

In this declaratory judgment action, plaintiff claims that all of the party insurance companies have a duty to defend National Drum because the plaintiffs in the four suits advanced theories which arguably fall within the coverage of each policy.

Under Michigan law¹, it is well established that an insurer's duty to defend is independent of its duty to pay. Stockdale v. Jamison, 416 Mich. 217, 330 N.W.2d 389 (1982). The duty to defend depends entirely on whether the person claiming against the insured has advanced any theories of recovery in the complaint that even arguably fall within the coverage of the policy. Guerdon Industries v. Fidelity & Casualty of New York, 371 Mich. 12, 123 N.W.2d 143 (1963); Wright v. White Birch Park, 118 Mich.App. 639, 325 N.W.2d 524 (1982); Detroit Edison v. Michigan Mutual, 102 Mich.App. 136, 301 N.W.2d 832 (1980); Dochod v. Central Mutual, 81 Mich.App. 63, 264 N.W.2d 122 (1978).

In applying this principle of insurance law to this case, it is necessary to scrutinize the theories of liability advanced in each complaint, as well as the relevant provisions of each insurance policy.

The four lawsuits were filed within three years after a "toxic substance emergency" was declared for the entire area surrounding the dump sites. The emergency action was taken in September 1979 following an extensive investigation by the Department of Natural Resources (DNR) of the dump sites in question. Since the early and mid-1970's, the owners of the dump sites were under orders to clean them up and alleviate the ill effects from the toxic waste materials. Their failure to comply with the orders precipitated the DNR investigation in 1979.

The allegations against National Drum in the four complaints can be summarized as follows:

National Drum was an originator or producer of toxic wastes which were dumped on certain properties.

The dumping began in 1966 and was continuous, and the pollution and contamination will likely continue into the future.

The toxic wastes seeped into the ground and moved through the water tables to the adjoining lands of plaintiffs.

Plaintiffs' water source was contaminated and unfit for human or animal consumption.

Plaintiffs consumed the water, which is dangerous to their health, were deprived of a source of water on their property, were deprived of reasonable use and enjoyment of their property, and suffered depreciation of market value.

National Drum entered into agreements to unlawfully dispose of the toxic materials and is liable for the unlawful dumping under theories of negligence, negligent entrustment, nuisance, trespass, strict liability and products liability.

The policies issued by the four party insurers for various periods of time between 1970 and October 1981 contain substantially the same basic language with respect to the duty to defend and indemnify. The language reads as follows:

The company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury or property damage to which this policy 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 bodily injury or property damage ... even if any of the allegations of the suit are groundless, false or fraudulent....

When used in this policy ...

"Occurrence" means an accident, including injurious 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;

The policies also contain a pollution exclusion clause, which reads:

It is agreed that the insurance 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

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