Bausch & Lomb Inc. v. Utica Mut. Ins. Co.

• Citation: 625 A.2d 1021,330 Md. 758
• Decision Date: 01 September 1992
• Docket Number: No. 56,56
• Parties: , 37 ERC 1813, 61 USLW 2724 BAUSCH & LOMB INCORPORATED et al. v. UTICA MUTUAL INSURANCE COMPANY. ,
• Court: Court of Appeals of Maryland

Page 758

330 Md. 758

625 A.2d 1021, 37 ERC 1813, 61 USLW 2724

BAUSCH & LOMB INCORPORATED et al. v. UTICA MUTUAL INSURANCE COMPANY.

No. 56, Sept. Term, 1992.

Court of Appeals of Maryland.

May 12, 1993.

As Corrected on Denial of Reconsideration July 12, 1993.

Argued by Joseph D. Tydings (Jordan S. Stanzler, Mark A. Kolman, Catherine D. Serafin, Jean E. Zimmerman, Anderson, Kill, Olick & Oshinsky, all on brief), Washington, DC, and (Charles R. Taylor, Gordon, Feinblatt, Rothman, Hoffenberger & Hollander, all on brief), Baltimore, for petitioner.

Argued by John B. Wyss (Wiley, Rein & Fielding, Michael R. Cannon, Joseph L. Ruby, all on brief), Washington, DC, and (M. King Hill, III, Venable, Baetjer & Howard, all on brief), Towson, for respondent.

Russell H. Carpenter, Jr., Saul B. Goodman, Douglas M. Gleason, Philip D. Golrick, Covington and Burling, Washington, DC, for The American Petroleum Institute, The American Fiber Mfrs. Ass'n, The Chemical Mfrs. Ass'n, Intern. Business Machines Corp. and Olin Corp.

Emory Plitt, County Atty., Jefferson L. Blomquist, Deputy County Atty., Bel Air, for Hartford County.

J. Joseph Curran, Jr., Atty. Gen. of MD (Pamela D. Marks, Valerie J. Smith, Asst. Attys. Gen., all on brief), Baltimore, for State of MD.

Michael J. Travieso (Gallagher, Evelius & Jones, both on brief), Baltimore, for Johns Hopkins University, University of MD Medical Systems Corp., Allied-Signal Inc., AMG Resources Corp., Baltimore Specialty Steel, Blue Circle America, Chemetals Inc., Chesapeake Finished Metals, Domino Sugar Co., Eastern Stainless Corp., Fallstaff Search, Howard L. Chertkof & Co., Inc., Klein Enterprises, Lenmar Inc., McCorquodale Process Co., Metropolitan Management, Inc., Nat. Gypsum Co., SCM Chemicals, Sweethart Cup Co., Inc. and W.R. Grace & Co.

Roger E. Warin, Diane Hollenshead Copes (Steptoe & Johnson, all on brief), Washington, DC, for Ins. Environmental Litigation Ass'n.

E. Charles Dann, Jr., Stephen E. Marshall (Goodell, DeVries, Leech & Gray, all on brief), Baltimore, for Md. Cas. Co., U.S. Fidelity & Guar. Co., Government Employees Ins. Co., MD. Ass'n of Mut. Ins. Companies and Fidelity and Deposit Co. of MD.

Lee H. Ogburn (Kramon & Graham, both on brief), Baltimore, for John Richard Ludbrooke Youell, on his own behalf and as a representative of similarly situated Cas Underwriters at Lloyd's, London, and British Ins. Companies Trading in the London Ins. Market.

Stephen C. Wilkinson, County Atty., for Allegany County.

Judson P. Garrett, Jr., County Atty., Stephen M. LeGendre, Deputy County Atty., for Anne Arundel County.

H. Emslie Parks, County Atty., for Baltimore County.

Ralph H. France, II, County Atty., for Washington County.

Edgar A. Baker, Jr., County Atty., for Wicomico County.

Edward H. Hammond, Jr., County Atty., for Worcester County.

William R. Bailey, County Atty., for Calvert County.

Charles W. Thompson, Jr., County Atty., for Carroll County.

H. Norman Wilson, Jr., County Atty., for Cecil County.

John S. Mathias, County Atty., for Frederick County.

Barbara Cook, County Sol., for Howard County.

Joyce R. Stern, County Atty., for Montgomery County.

Joseph R. Densford, County Atty., for St. Mary's County.

Clinton S. Bradley, III, President, Talbot County Council.

James M. Slay, Jr., County Atty., for Talbot County.

Argued before MURPHY, C.J., ELDRIDGE, RODOWSKY, McAULIFFE, KARWACKI and ROBERT M. BELL, JJ., and CHARLES E. ORTH, Jr., Associate Judge of the Court of Appeals, (retired), Specially Assigned.

MURPHY, Chief Judge.

This case focuses upon the meaning and application of certain provisions of a comprehensive general liability (CGL) insurance policy. The primary question presented is whether the insurer must defend or indemnify the insured as a consequence of groundwater pollution discovered on its industrial site, which entailed expenses of removing soil contaminated with hazardous chemicals. The insured initiated the clean-up without legal proceedings having been formally filed against it by a third party, and without a written administrative directive by a government agency that it take such action.

I

Utica Mutual (Utica) is a mutual insurance company based in the State of New York. Bausch & Lomb (B & L) is a Fortune 500 manufacturer of health care and optical products with its headquarters in Rochester, New York. The site in question is the Diecraft manufacturing facility, located in Sparks, Maryland, about 15 miles north of Baltimore City. The property consists of some 28 acres; the plant itself was built in 1958, and purchased by B & L in 1965. B & L operated the Diecraft facility for the machining and plating of parts used in telescopes and microscopes.

A.

Utica sold CGL policies to B & L annually from at least 1970 to 1986. The policy was a standard form document adopted generally throughout the insurance industry, to which were attached certain endorsements or riders negotiated by the parties. The relevant standard language provided:

"The company [Utica] will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... property damage 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."

The policy defined an "occurrence" as

"an accident, including continuous or repeated exposure to conditions, which results in ... property damage neither expected nor intended from the standpoint of the insured."

"Property damage", in turn, was defined as

"physical injury to or destruction of tangible property which occurs during the policy period, including the loss of use thereof at any time resulting therefrom."

The policy did not define the term "damages." Nor did it define the word "suit" in that part of the insuring agreement that requires the insurer "to defend any suit against the insured seeking damages on account of ... property damage." ¹

The standard form policy also included 17 specific exclusions from coverage, of which two have some bearing on this case. One provision, paragraph (l ), excluded coverage for property damage to premises alienated by the insured. The second, paragraph (k), comprised the so-called "own property" provision excluding coverage for property damage to property owned by, occupied by, rented to, used by, or in the care, custody, or control of the insured, B & L. Under a separately negotiated rider, endorsement # 18, the parties eliminated the standard exclusion in paragraph (k) and substituted "own property" coverage with a limit of $50,000 per occurrence.

None of the policies for this period contained an express "pollution exclusion" of the type that is now common in liability insurance contracts. Nor did the policies contain an express endorsement providing for environmental impairment liability coverage. The extent to which the policy reaches, or fails to reach, property damage caused by pollution thus depends on the policy's standard language and the parties' endorsements to it.

B.

The Diecraft plant carried on metal plating activities from 1958 through 1975. The plating created two types of waste, each of which was disposed of on-site. More concentrated plating wastes were first routed into a series of settling tanks, and then into a holding lagoon on the plant grounds; the lagoon measured 20 feet by 60 feet by 6 feet deep. Less concentrated rinse water waste, along with polishing residues and degreasing solvents, traveled first into a holding tank, and then into a set of drywells and overflow pipes located on a downward slope leading to some woods at the facility's western side. Each of the three drywells measured 15 feet in diameter and was 22 feet deep. By design, the liquid waste percolated from the drywells into the surrounding soil; the overflow pipes drained any excess directly to the woods below. None of the disposal techniques departed from accepted industrial practices of the time.

In 1982, B & L first surveyed the facility for pollution in response to employee concerns about these formerly used waste-disposal methods. Tests indicated in November that certain heavy metals, notably nickel and cadmium, had contaminated the ground in the area of the old lagoon; B & L reported these findings to the federal Environmental Protection Agency in February 1983. ²

In the fall of 1983, B & L engaged Fred C. Hart Associates (Hart), an environmental engineering and consulting firm, to conduct a systematic investigation of the Diecraft property, which began the next year. ³ Hart confirmed the presence of the heavy metal contamination, and concluded that there existed little risk of it migrating.

Further testing in May and October 1984, however, revealed unacceptable levels of a hazardous chemical compound used as an industrial solvent, trichloroethylene (TCE), at the Diecraft site. The TCE contaminated the subsurface groundwater near the disposal drywells and piping network. The TCE also contaminated a small stream, fed by groundwater, cutting across B & L's property and onto an adjacent parcel of land then owned by the Knott Development Corporation. ⁴ Hart reported these findings to B & L in November 1985. By late 1987, Hart determined the source of the contamination to be the on-site disposal system, primarily sludge at the bottom of the drywells from where the TCE infiltrated the groundwater.

Other events in 1987 merit particular mention. On June 19, 1987, after the adjacent Knott property had been sold to the Highlands Park I Limited Partnership, the new owner wrote to B & L; it claimed TCE contamination of the ground and surface water on its own property, ascribed the pollution to the Diecraft site waste-disposal activities, and threatened to sue. On June 26, 1987, B & L informed Utica of Highlands Park's potential claim, and at the same time requested reimbursement of approximately...