Broderick Inv. Co. v. Hartford Acc. & Indem. Co.

• Decision Date: 08 January 1992
• Docket Number: No. 90-1112,90-1112
• Citation: 954 F.2d 601
• Parties: , 34 ERC 1679, 22 Envtl. L. Rep. 20,768 BRODERICK INVESTMENT COMPANY, a partnership and successor to Broderick Wood Products, Inc.; the Colorado National Bank of Denver as trustee; and the First Interstate Bank of Denver, N.A., as trustee, Plaintiffs-Appellees, v. The HARTFORD ACCIDENT & INDEMNITY COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 601

954 F.2d 601

34 ERC 1617, 34 ERC 1679, 22 Envtl.

L. Rep. 20,768

BRODERICK INVESTMENT COMPANY, a partnership and successor to Broderick Wood Products, Inc.; the Colorado National Bank of Denver as trustee; and the First Interstate Bank of Denver, N.A., as trustee, Plaintiffs-Appellees, v. The HARTFORD ACCIDENT & INDEMNITY COMPANY, Defendant-Appellant.

No. 90-1112.

United States Court of Appeals Tenth Circuit.

Jan. 8, 1992.

Order on Grant of Rehearing and Denial of Suggestion for Rehearing

En Banc April 15, 1992.

Thomas L. Roberts (Susan T. Smith and Joanne M. Zboyan, of Pryor, Carney &

Johnson, P.C., with him on the briefs), of Pryor, Carney & Johnson, P.C., Englewood, Colo., for defendant-appellant.

Brooke Jackson (Camron R. Kuelthau, of Holland & Hart, Denver, Colo., and Elizabeth A. Phelan, Dubofsky & Phelan, Boulder, Colo., with him on the briefs), of Holland & Hart, Denver, Colo., for plaintiffs-appellees.

Thomas W. Brunner, James M. Johnstone, and Daniel E. Troy, of Wiley, Rein & Fielding, Washington, D.C., on the brief for Ins. Environmental Litigation Ass'n, amicus curiae.

Gale A. Norton, Atty. Gen., Raymond T. Slaughter, Chief Deputy Atty. Gen., Timothy M. Tymkovich, Sol. Gen., Patricia S. Bangert, Deputy Atty. Gen., Daniel S. Miller, First Asst. Atty. Gen., and Charlotte Robinson, Asst. Atty. Gen., Natural Resources Section, on the brief, for State of Colo., amicus curiae.

William H. Allen and William F. Greaney, of Covington & Burling, Washington, D.C., on the brief for The American Fiber Mfrs. Ass'n, The American Petroleum Institute, The Chemical Mfrs. Ass'n, The Colorado Mining Ass'n, Allied-Signal, Inc., Intern. Business Machines Corp., and Olin Corp., amici curiae.

Before TACHA and SETH, Circuit Judges and BRATTON, District Judge. ^*

TACHA, Circuit Judge.

I. Introduction

This diversity action presents several questions concerning the availability of coverage under the Comprehensive General Liability (CGL) insurance policy for environmental response costs sought by the Environmental Protection Agency (EPA) pursuant to the Resource Conservation and Recovery Act (RCRA), 42 U.S.C. § 6901 et seq., and the Comprehensive Environmental Response Compensation and Liability Act (CERCLA), 42 U.S.C. § 9601 et seq. ¹

On appeal, appellants challenge the district court's legal rulings on the following issues: (1) the interpretation of the term "occurrence" in the CGL policy; (2) the interpretation of the phrase "sudden and accidental" in the pollution exclusion clause; (3) the applicability of the pollution exclusion; (4) the interpretation of the term "damages"; (5) the interpretation of the "owned property" exclusion; and (6) the award of attorneys' fees in favor of the insured.

We review the district court's rulings on these questions of Colorado contract and insurance law de novo. Salve Regina College v. Russell, --- U.S. ----, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991). We must interpret the insurance contract as a Colorado court would. See Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S.Ct. 817, 82 L.Ed. 1188 (1938).

II. Factual Background

Broderick Wood Products, Inc. (BWP) was formed in 1946. Its founder, William Broderick, placed the stock in trusts administered by the Colorado National Bank of Denver and what is now the First Interstate Bank of Denver (collectively, the trustees). The company ceased operations in 1981 and was dissolved in 1982. Broderick Investment Company (BIC), a limited partnership whose general partners are the two bank trustees, succeeded to the company's rights and obligations.

BWP's business involved pressure-treating wood products such as telephone poles and railroad ties with either creosote or pentachlorophenol; steam-cleaning the impregnated wood; and disposing of the residue chemicals, oils, and water. BWP disposed of these waste materials into what today would be considered unlined pits located on the plant property. The waste materials were ninety-eight percent water, which was expected to evaporate and leave a sludge on the pit bottom.

By mid-1983, it was conclusively determined that contaminants from the pits were seeping into the soil and groundwater. The BWP facility was eventually added to the National Priorities List of hazardous waste sites under CERCLA. 49 Fed.Reg. 37070, 37085 (Sept. 21, 1984).

In April 1985, the EPA threatened to file a lawsuit against BIC and the trustees under CERCLA and RCRA unless the parties could agree to a consent decree. After several months of negotiations, the EPA and BIC agreed to a pretrial consent decree whereby BIC would pay for a study to investigate the contamination and possible solutions. On February 28, 1986, the EPA filed suit against BIC and the trustees, seeking recovery of environmental response costs incurred and to be incurred in association with the cleanup of the BWP facility. ²

On June 6, 1986, one of the trustees' general liability carriers, United States Fidelity & Guaranty, filed this diversity action in the United States District Court for the District of Colorado, seeking a declaration that the CGL policies it had issued to the trustees provided no coverage for response costs sought by the EPA. The named defendants included BIC, the trustees, and other general liability carriers, including Hartford Accident & Indemnity Company. Hartford provided BWP with CGL policy coverage from 1976 until 1982 and insured BIC from 1982 until 1984. BWP's prior insurers were either insolvent or unidentifiable. BIC cross-claimed against Hartford for coverage. Hartford counterclaimed for a declaration of no coverage and cross-claimed against the other carriers for contribution. BIC settled with the trustees' insurers prior to trial. The court then realigned the parties, naming BIC and the trustees as plaintiffs and Hartford as defendant. ³

Prior to trial, the district court interpreted disputed terms of the CGL policy after receiving briefs, argument, and short evidentiary presentations concerning the intent of the policy drafters. The jury instructions and special verdict form reflected these legal rulings. The jury returned a verdict in favor of BIC based on the responses to the questions in the special verdict form.

Following the trial, the court awarded BIC attorneys' fees under the policy provision stating the insurer would pay "reasonable expenses incurred by the insured at the company's request in assisting the company in the investigation or defense of any claim or suit." The court also interpreted the 1983 policy to provide coverage of $3 million per occurrence and the other policies to provide coverage of $1 million per occurrence.

The CGL policy provides coverage for legal liability for damages imposed upon the insured as a result of an "occurrence." The policy defines an occurrence as an "accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." Assuming the insured's loss resulted from an occurrence, the insurer may avoid paying out on the policy if the event falls within the policy's pollution exclusion. This provision excludes coverage for damages "arising out of the discharge, dispersal, release or escape of ... pollutants into or upon land." Coverage is restored, however, if "such discharge, dispersal, release or escape is sudden and accidental."

Because our decision necessarily would implicate unique matters of Colorado law and because the Colorado Supreme Court was in the process of addressing the CGL exclusion clause in a case before it, we waited to decide our case until the Colorado Supreme Court announced its decision. In Hecla Mining Co. v. New Hampshire Ins. Co., 811 P.2d 1083 (Colo.1991), the Colorado Supreme Court addressed the meaning of the phrase "property damage neither expected nor intended from the standpoint of the insured," which is part of the policy's definition of the term "occurrence." The court interpreted that phrase to exclude only property damages that "the insured knew would flow directly and immediately from its intentional act." Id. at 1088. The Colorado Supreme Court then addressed the meaning of the phrase "sudden and accidental." It construed "sudden and accidental" to mean unexpected and unintended. Id. at 1092.

Although the Hecla decision resolved some issues before this court, it left unresolved two critical issues that we must address--namely, whether the placement of waste materials into containment ponds constituted a "discharge, dispersal, release or escape" and, if so, whether property damage could be said to arise out of this "discharge, dispersal, release or escape." Realizing that the resolution of these issues depended entirely on highly specific and complex matters of contract interpretation under Colorado law, we certified the following question to the Colorado Supreme Court:

For purposes of interpreting a pollution exclusion in a comprehensive general liability policy, does the placement of industrial wastes into unlined storage pits when the insured did not intend third party damage to result constitute a "discharge, dispersal, release, or escape" within the meaning of the exclusion such that the damage can be said to "arise out of" the disposition of wastes in the pits?

The Colorado Supreme Court refused to answer the question.

Therefore, we now must proceed to resolve these two unique and dispositive questions of state law as we believe the Colorado Supreme Court would. We exercise jurisdiction pursuant to 28 U.S.C. § 1291 and reverse.

III. The Interpretation of the Term "Occurrence" in the CGL Policy

Before addressing issues related to the pollution exclusion clause, we first examine the district court's jury instructions regarding whether there was an "occurrence." When reviewing a challenge to jury instructions, "we review the record as a whole to determine whether the instructions 'state the law...