Arco Industries Corp. v. American Motorists Ins. Co.

• Decision Date: 01 March 1996
• Docket Number: Docket No. 187104
• Citation: 546 N.W.2d 709,215 Mich.App. 633
• Parties: ARCO INDUSTRIES CORPORATION, and Frederick C. Matthaei, Jr. v. AMERICAN MOTORISTS INSURANCE COMPANY (On Remand).
• Court: Court of Appeal of Michigan — District of US

Page 709

546 N.W.2d 709

215 Mich.App. 633

ARCO INDUSTRIES CORPORATION, and Frederick C. Matthaei, Jr. v. AMERICAN MOTORISTS INSURANCE COMPANY (On Remand).

Docket No. 187104.

Court of Appeals of Michigan.

Submitted July 6, 1995, at Lansing.

Decided March 1, 1996, at 9:00 a.m.

Released for Publication April 29, 1996.

Honigman Miller Schwartz & Cohn by Jay E. Brant, Philip A. Grashoff, Jr., and Mark A. Goldsmith, Detroit, and Butler Durham & Willoughby by Sidney D. Durham, Parchment, for plaintiff.

Miller, Canfield, Paddock & Stone by Kevin J. Moody and Drinker Biddle & Reath, Lansing by T. Andrew Culbert and Paul H. Saint-Antoine, Philadelphia, PA, for defendant.

Before MICHAEL J. KELLY, P.J., and MacKENZIE and CORRIGAN, JJ.

MacKENZIE, Judge.

At the conclusion of a bench trial in this declaratory judgment action, defendant American Motorists Insurance Company (AMICO) was ordered to indemnify its insureds, plaintiffs Arco Industries Corporation and Frederick C. Matthaei, Jr. (hereinafter Arco), for costs Arco incurred as a result of an action brought by the Department of Natural Resources to compel the remediation of chemical contamination at Arco's manufacturing plant. AMICO appealed, and this Court reversed, holding that because Arco expected or intended to contaminate the environment, there was no duty to indemnify. Arco Industries Corp. v. American Motorists Ins. Co., 198 Mich.App. 347, 497 N.W.2d 190 (1993). Arco appealed the decision of this Court, and the Supreme Court reversed, concluding that this Court "erred in reversing the determination that neither Arco nor its employees expected or intended to harm the environment." Arco Industries Corp. v. American Motorists Ins. Co., 448 Mich. 395, 411, 531 N.W.2d 168 (1995). The Supreme Court remanded the case to this Court for consideration of issues relating to the duty to defend that had been raised by Arco. Id. at pp. 417-418, 531 N.W.2d 168. Additionally, by motions for peremptory reversal and summary affirmance Arco again brought before this Court many of the issues raised but not decided by our previous opinion, including the question of when AMICO's coverage was triggered. On remand, we conclude that, on the facts of this case, coverage could not have been triggered until 1985 and that AMICO therefore had no duty to indemnify or defend in the underlying action. Accordingly, we again reverse the judgment of the trial court.

I

Arco is an automotive parts manufacturer. Its manufacturing plant was built in 1953 and has been operated by Arco since 1967. The manufacturing and cleansing processes employed at the plant by Arco and its predecessor involved certain volatile organic compounds (VOCs). These VOCs were flushed through a drainage system that emptied into a seepage lagoon.

In November 1985, the DNR discovered groundwater contamination by VOCs that had originated from Arco's plant. Subsequent tests showed further contamination of the soil and groundwater beneath Arco's seepage lagoon. In October 1987, the state brought suit to compel remediation. That suit ultimately resulted in a consent decree that required Arco to pay the state $450,000 in response costs and attorney fees. Arco was also required to implement a groundwater treatment system, a soil remediation program, a groundwater purge system, and a groundwater monitoring program.

Arco was insured under several policies during the years it operated the plant. As relevant to this case, Arco sought coverage with respect to the underlying litigation under seven AMICO policies, each for a period of one year, beginning in 1968 and continuing through 1974. The trial court found AMICO liable under these policies and ordered it to indemnify Arco for 68.63 percent of the costs incurred in remediating the contamination and to reimburse Arco its costs in defending the underlying action.

II

We have been instructed by the Supreme Court to consider various issues surrounding AMICO's duty to defend Arco in the underlying litigation. We conclude that AMICO had no duty to defend Arco in the underlying litigation because coverage was not triggered during the policy period. Accordingly, we conclude that the duty to defend issues are moot.

The duty to defend is essentially tied to the availability of coverage. As stated in Polkow v. Citizens Ins. Co. of America, 438 Mich. 174, 178, 476 N.W.2d 382 (1991), the duty to defend arises in instances in which coverage is even arguable, though the claim may be groundless or frivolous. See also Auto-Owners Ins. Co. v. City of Clare, 446 Mich. 1, 15, 521 N.W.2d 480 (1994). Consistent with this premise, any analysis of an insurer's duty to defend must begin with an examination whether coverage is possible. See id., pp. 15-16, 521 N.W.2d 480. If coverage is not possible, then the insurer is not obliged to offer a defense. Id., citing Protective Nat'l Ins. Co. v. Woodhaven, 438 Mich. 154, 160, 476 N.W.2d 374 (1991).

As the Supreme Court in this case noted: "According to the plain meaning of the applicable AMICO comprehensive general liability policy, coverage only exists where an...