Bell Lumber and Pole Co. v. US Fire Ins. Co.

• Decision Date: 21 March 1994
• Docket Number: Civ. No. 4-89-931.
• Citation: 847 F. Supp. 738
• Parties: BELL LUMBER AND POLE COMPANY, Plaintiff, v. UNITED STATES FIRE INSURANCE COMPANY, Continental Casualty Company, The Hartford Accident and Indemnity Company, Liberty Mutual Insurance Company, Westchester Fire Insurance Company and Centennial Insurance Company, Defendants.
• Court: U.S. District Court — District of Minnesota

847 F. Supp. 738

BELL LUMBER AND POLE COMPANY, Plaintiff, v. UNITED STATES FIRE INSURANCE COMPANY, Continental Casualty Company, The Hartford Accident and Indemnity Company, Liberty Mutual Insurance Company, Westchester Fire Insurance Company and Centennial Insurance Company, Defendants.

Civ. No. 4-89-931.

United States District Court, D. Minnesota, Fourth Division.

March 21, 1994.

COPYRIGHT MATERIAL OMITTED

Thomas C. Mielenhausen, Steven A. Mogck, and Popham, Haik, Schnobrich & Kaufman, Ltd., Minneapolis, MN, for plaintiff.

Robert E. Salmon, Stacy A. Broman, and Meagher & Geer, Minneapolis, MN, for defendant Continental Cas. Co.

Scott P. Drawe, Louise A. Behrendt, and Stich, Angell, Kreidler & Muth, P.A., Minneapolis, MN, for defendant Centennial Ins. Co.

ORDER

DOTY, District Judge.

This matter is before the court on the joint motion of defendants Continental Casualty Company ("CCC") and Centennial Insurance Company ("Centennial") for summary judgment. Bell Lumber and Pole Company ("Bell Lumber") has incurred certain costs related to pollution damage. Bell Lumber brought suit seeking to hold various insurers responsible for those and future related costs. CCC and Centennial contend that their liability insurance policies do not cover Bell Lumber's pollution-related claims. Based on a review of the file, record and proceedings herein, and for the reasons stated below, the court grants defendants' motion for summary judgment.

BACKGROUND

Bell Lumber sells treated wood poles used for power and telephone lines. Bell Lumber owns and operates a wood treatment facility in New Brighton, Minnesota, and has treated wood there since 1920. Bell Lumber initially treated lumber with creosote. Bell Lumber burned creosote wastes with wood shavings. Bell Lumber also dumped some sludge from its creosote butt tanks in a disposal area located on the New Brighton site. The disposal area was located in a low-lying wetland near a pond on the east end of Bell Lumber's site.¹ Bell Lumber's treatment operation produced between 5,600 and 8,400 gallons of creosote sludge per year. Bell Lumber's use of creosote was phased out in the late 1950s and early 1960s.

In 1946, Bell Lumber began using pentachlorophenol ("penta") as a wood preservative. Penta is an organic chemical produced by reacting chlorine gas with phenol. Bell Lumber placed poles and dry penta crystal in covered treatment tanks. The treatment tanks were connected by underground pipe to oil storage tanks. Hot oil was pumped into the tanks to thermally treat the poles; the weight ratio of penta to oil was about 5 to 6 percent. After the poles became heated, the hot oil was removed and the poles were flooded with cold oil. The cold oil bath allowed the penta to penetrate the poles. The cold oil was quickly extracted and a short hot oil bath followed to remove any residue. The oil was pumped out of the tanks and the poles were left in the tanks for four to six hours. The poles tended to be dry at the end of the process but occasionally penta solution dripped off poles removed from the tanks.

The treatment process created a sludge consisting of oil and penta emulsion, soil and wood particles. The sludge collected in the storage and treatment tanks. From 1952 through 1974, Bell Lumber dumped penta sludge and other waste in the disposal area. Bell Lumber removed the sludge from the bottom of the tanks and shoveled it into 55 gallon drums. The barrels of sludge were taken to the disposal area and poured onto a bed of wood shavings placed directly on the ground. Bell Lumber's wood treatment operation produced approximately 4,000 gallons of sludge per year. Bell Lumber also used penta solution as a herbicide to control weeds around its yard.

Warning labels were placed on penta packages beginning in the late 1940s. Bell Lumber told its employees to avoid breathing vapors emanating from the treatment tanks. It also provided face masks with filters for treating engineers and other employees who worked directly with the penta solution. Bell Lumber cautioned its employees not to let penta come into contact with their skin. Bell Lumber employees who hauled the sludge to the disposal area wore rubber suits and gloves. The evidence also indicates that, prior to 1960, the wood preserving industry in general was aware that penta introduced into lakes and streams killed fish.

Over a span of 40 years, Bell Lumber experienced a number of spills of oil mixed with penta and oil mixed with creosote from its treatment and storage tanks. The spills were caused by valves being left open, tanks being filled beyond capacity and boilovers due to excess moisture in the treatment tanks. Bell Lumber used sand dikes, barrels, wood shavings and pumps to recover the spilled preservative and excavated visibly contaminated soil. Bell Lumber employees specifically recall 15 incidents. There was a boilover from a creosote butt tank in the late 1930s. There were two releases from the full-length treatment tanks in the mid-1950s. One release was caused by a fire and a spill; the other by a boilover. A treatment tank was filled beyond its capacity in 1954, resulting in the loss of approximately 2,000 to 3,000 gallons of penta solution.

The largest release occurred in 1963 when an overfill resulted in the loss of 25,000 gallons of penta solution. Between 1965 and 1970, three spills caused a total loss of 4,000 to 6,000 gallons of penta solution. A number of spills occurred in the 1970s. One release was caused by a hole ripped in a treatment tank when a cleat was accidentally removed. Another release was caused by a boilover from a creosote butt tank. A storage tank was filled beyond its capacity in 1974 causing the loss of approximately 2,000 gallons of penta solution. Overfilled treatment tanks caused two other spills in 1974. The second spill may have been caused by a flashover produced by heavy rains. The spilled penta solution reached Pike Lake and killed a number of fish. A few minor spills caused by boilovers and overfills occurred after 1975. There were also two other boilovers with no time frame or loss estimate.

Bell Lumber employees regularly checked the tanks, pumps and pipes for cracks or leaks and repaired them immediately. The entire system could not be visually monitored, however, because a portion of the treatment system was underground. Underground pipes connected the treatment and storage tanks; the three butt tanks and treatment tank number 16, which was installed in 1951, were also partially underground.² Bell Lumber used a sump in the pump pit at the north end of tank No. 16 to detect leaks. Despite these efforts, the evidence indicates that penta solution escaped into the ground through cracks or leaks in tanks, pipes and valves.

One treating engineer who began working for Bell Lumber in 1963 stated that tank No. 16 leaked on several occasions and specifically recalled finding six cracks in tank No. 16 over the years. A leak discovered in 1970 caused Bell Lumber to undertake a major renovation and hire an outside contractor to patch the bottom of tank No. 16. A few years later, a crack was found in the seam of tank No. 16 and was repaired. The seam crack could have allowed a major escape of oil before it was discovered. Bell Lumber discovered more cracks in tank No. 16 through testing in the 1980s. The pipes and fittings were also found to have leaks.

The Minnesota Pollution Control Agency ("MPCA") interceded in 1974 after the fish kill incident. The MPCA directed Bell Lumber to clean up the penta solution that flowed into Pike Lake. The MPCA also informed Bell Lumber that it could no longer dump penta sludge in the disposal area. The disposal area was located in a wetland that served as a source of water infiltration to the aquifer below Bell Lumber's property. Groundwater tests in 1979 and 1981 showed penta and creosote contamination under Bell Lumber's property.³ The MPCA also found that the soil near the disposal area was contaminated. Bell Lumber excavated and backfilled the disposal area in 1983.⁴ The surface and subsurface soil near the process area was also found to be contaminated with penta and creosote. The soil within the process area was excavated by Bell Lumber.

Over 200,000 gallons of penta was found in the groundwater under the process area.⁵ Bell Lumber's environmental manager, Daryle Thingvold ("Thingvold") testified that, based on the amount of penta in the groundwater, he believed the contamination in the area of the treatment and butt tanks was primarily "caused by leaks in the treating vessels." A year later, however, Thingvold testified that while leaks from the tanks may have contributed to the contamination, they were not a "major factor." Thingvold also stated that on occasion a valve or pipe joint would develop a small leak but that leaks were repaired immediately.

In February 1984, the MPCA formally requested that Bell Lumber take specific cleanup action concerning surface and subsurface contamination. In May 1985, Bell Lumber agreed to undertake certain remedial measures and pay for the clean-up of its property pursuant to a Consent Order. In 1989, the Environmental Protection Agency notified Bell Lumber that it would pursue a claim against Bell Lumber for the costs of investigating and remedying surface and subsurface contamination. Bell Lumber now seeks to hold various insurers, including Centennial and CCC, responsible for those and future related costs.

It is undisputed that between December 19, 1971 and January 1, 1975, Centennial provided umbrella excess liability insurance to Bell Lumber. The Centennial policy contains a qualified pollution exclusion. Bell Lumber contends that the exclusion is void because Centennial failed to file a form endorsement with the Minnesota Insurance Commissioner prior to issuing the policy. Bell Lumber asserts that it also purchased primary comprehensive general liability ("CGL") insurance from CCC which...