Boston Gas Co. v. Century Indem. Co.

Decision Date10 June 2008
Docket NumberNo. 07-1452.,07-1452.
Citation529 F.3d 8
PartiesBOSTON GAS COMPANY, d/b/a Keyspan Energy Delivery, Plaintiff, Appellee, v. CENTURY INDEMNITY COMPANY, Defendant, Appellant. Certain Underwriters at Lloyd's London; Certain London Market Insurance Companies; Travelers Casualty and Surety Company; Associated Electric & Gas Insurance Services Limited; Aetna Casualty & Surety Company; The Hartford Insurance Company, Third-Party Defendants.
CourtU.S. Court of Appeals — First Circuit

Guy A. Cellucci with whom Shane R. Heskin, White & Williams LLP, David B. Chaffin and Hare & Chaffin were on brief for appellant.

David L. Elkind with whom John A. Gibbons and Dickstein Shapiro LLP were on brief for appellee.

William G. Passannante, Eugene R. Anderson, Anderson Kill & Olick, P.C., Amy Bach and Law Offices of Amy Bach on brief for United Policyholders, Amicus Curiae.

Robert J. Gilbert and Gilbert & Renton LLC on brief for Invensys Systems, Inc., Amicus Curiae.

Before BOUDIN, Chief Judge, SELYA, Senior Circuit Judge, and GELPI,* District Judge.

BOUDIN, Chief Judge.

This is a dispute between Boston Gas Company ("Boston Gas"), the largest provider of natural gas in the New England area, and one of its insurers, Century Indemnity Company ("Century"). Before natural gas became the primary source of energy in New England, Boston Gas produced gas fuel at facilities called manufactured gas plants, known in the industry as "MGPs". These MGPs created gas by heating coal in large ovens, generating gas which was then purified and piped out for use.

This process also produced a variety of byproducts, including ash, drip oil, tar and coke. Many are non-biodegradable and some are deemed carcinogenic, and they now contaminate the ground and water around many former MGP sites; further, MGPs were often sited near waterways which were contaminated in turn.1 See EnergyNorth Natural Gas, Inc. v. Century Indem. Co., 452 F.3d 44, 46-47 (1st Cir.2006). Contamination has been discovered at twenty-nine former Boston Gas MGPs; this case concerns only one of those sites, located in Everett, Massachusetts.

Boston Gas operated the Everett MGP from 1908 until approximately 1969; the MGP produced manufactured gas and also processed coke oven gas purchased from a nearby coke plant. In 1995, a routine investigation uncovered contamination at the Everett site. Although the Everett site had been sold to a new owner (DOMAC, LLC) in 1970, Boston Gas was nevertheless strictly liable under Massachusetts law for all costs associated with the investigation and cleanup of the contamination caused by the MGP's operations.

Boston Gas had purchased three general commercial liability insurance policies from Century covering the period from December 1, 1951, through December 1, 1969. Each policy contained a self-insured retention ("SIR") — essentially a deductible — of $100,000 for each occurrence resulting in personal injury or property damage. Above the deductible amount, the policies provided that Century would cover Boston Gas "ultimate net loss" up to the applicable limits of the policies for any liabilities stemming from bodily injury, property damage, or other harm caused by an "occurrence." An "occurrence," said the policies, was

an accident, including injurious exposure to conditions, which results, during the policy period, in property damage neither expected nor intended from the standpoint of the [i]nsured.

After Boston Gas investigated and began to clean up the contaminated soils and groundwater at and near the Everett site, Boston Gas warned Century that it might seek indemnification. Century "reserved its rights," and on October 22, 2002, Boston Gas filed a diversity law suit against Century in the federal district court, seeking a declaratory judgment as to Century's obligations under the policies and damages for its breach thereof. A three-week long jury trial followed, focusing upon the Everett site.2

Boston Gas argued in the district court that to recover under the policies, it needed to prove only that an occurrence had caused some off-site property damage during the policy periods — off-site because the policy had an "owned property" exclusion for damage to Boston Gas' own property. Off-site damage, in Boston Gas' view, required Century to indemnify Boston Gas for all its liabilities connected to the occurrence. Century responded that various exclusions contained in the policies precluded or limited indemnification.

Importantly, Century argued that Boston Gas was well aware by 1951 that pollution from the Everett MGP was causing property damage at or near the site; the costs were therefore barred by an exclusion requiring that the property damage be "neither expected nor intended" by the insured. Century also argued that Boston Gas improperly sought to recover costs expended to repair and improve the Everett site itself, rather than to remediate or prevent off-site property damage.

At trial, the jury awarded Boston Gas over $6.1 million in past remediation expenses; the district court also issued a declaratory judgment obligating Century to pay all future costs associated with the investigation and environmental cleanup of the Everett site. Century now appeals on multiple grounds from the district court's judgment. As usual, the standard of review depends on the issue. Indianapolis Life Ins. Co. v. Herman, 516 F.3d 5, 8 (1st Cir.2008).

Allocation among insurers. Century's most far-reaching claim is that the district court should have limited Century's liability by allocating Boston Gas' liabilities among all insurers from whom Boston Gas had purchased general commercial liability insurance during the Everett MGP's lifespan. Century insured Boston Gas under various policies from 1951-1969,3 while other insurers covered Boston Gas during other periods of its century-long operation.

Century does not now dispute the jury's finding that the Everett site suffered contamination during the 1951-1969 time period. Indeed, contamination seemingly occurred over a much longer period, even though no findings were made as to duration. Rather, renewing an argument made in the district court, Century says that manifestly not all of the damage could have been caused during its limited period of insurance and its liability should be no more than its proportionate share. It also urges that its share should be spread among its various policy years.4

The district court instead applied a method of allocation referred to in the doctrine as the joint and several, or "all sums," approach and permitted Boston Gas to recover from Century its total clean-up liability — subject only to the SIR and policy limit — under any one of its policies in place between 1951 and 1969. Not surprisingly, Boston Gas selected the policy with the highest coverage limit — $17 million — and Century was held fully liable for $6,227,327.90 in damages, less that policy's $100,000 SIR.

On appeal, arguing for pro rata allocation, Century highlights the policy language — the underscoring is ours — defining an occurrence as "an accident ... which results, during the policy period, in property damage." It asserts that it is not responsible for damage that occurred outside of the policy period, so proration among insurers is required. Boston Gas counters that the policy says nothing about proration, so given an occurrence — which includes "continuous or repeated exposure to substantially the same general conditions" — within the policy period, Century is liable for the "`ultimate net loss' mean[ing] the sum actually paid or payable" by the insured.

This dispute commonly arises in the context of environmental damage and toxic exposure disputes — so-called "long-tail" indivisible injuries attributable to ongoing events without a single clear "cause." See Russ & Segalla, 15 Couch on Insurance § 220:25 (3d ed.2007). The language of traditional comprehensive general liability policies — drafted before such law suits became common — does not neatly map onto these types of injuries. Hickman & DeYoung, Allocation of Environmental Cleanup Liability Between Successive Insurers, 17 N. Ky. L.Rev. 291, 292 (1990).

Competing methods have emerged. Some courts have deemed insurers fully liable — normally, jointly and severally — for all damages attributable to an occurrence, exposure or contamination that happened at least in part during the coverage period. See Keene Corp. v. Ins. Co. of N. Am., 667 F.2d 1034, 1050 (D.C.Cir.1981). Others have prorated an insurer's liability, based largely, but not always exclusively, on the number of years during which coverage was offered. See Ins. Co. of N. Am. v. Forty-Eight Insulations, Inc., 633 F.2d 1212, 1224-25 (6th Cir.1980); Owens-Illinois, Inc. v. United Ins. Co., 138 N.J. 437, 650 A.2d 974, 993-94 (N.J.1994). The parties agree that Massachusetts law governs here.

Unfortunately, the Massachusetts Supreme Judicial Court has not yet resolved this allocation question, A.W. Chesterton Co. v. Mass. Insurers Insolvency Fund, 445 Mass. 502, 838 N.E.2d 1237, 1242 n. 3 (Mass.2005) (expressly reserving the issue), so our choices are two: we can make our best guess on this de novo review issue, or we can certify the question and ancillary issues to the SJC. The first path offers the benefit of expedition but with a risk of error; the second path, the reverse.5

Although there is one Massachusetts Appeals Court decision on point, its treatment of the choice between the two allocation methods is cursory. Rubenstein v. Royal Ins. Co. of Am., 44 Mass.App.Ct. 842, 694 N.E.2d 381, 388 (Mass.App.Ct. 1998); see also Chicago Bridge & Iron Co. v. Certain Underwriters at Lloyd's, London, 59 Mass.App.Ct. 646, 797 N.E.2d 434, 441-45 (Mass.App.Ct.2003) (adopting joint and several allocation, but as a matter of Illinois law). Nor is there a clear consensus among the states as to which method is preferable. A growing plurality have adopted some...

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