Bureau of Engraving, Inc. v. Federal Ins. Co.

• Decision Date: 03 November 1993
• Docket Number: No. 92-2910,92-2910
• Citation: 5 F.3d 1175
• Parties: BUREAU OF ENGRAVING, INC., Plaintiff-Appellant, v. FEDERAL INSURANCE COMPANY, Defendant-Appellee. Insurance Environmental Litigation Association; Aetna Casualty and Surety Company, Amicus Curiae.
• Court: U.S. Court of Appeals — Eighth Circuit

Page 1175

5 F.3d 1175

BUREAU OF ENGRAVING, INC., Plaintiff-Appellant, v. FEDERAL INSURANCE COMPANY, Defendant-Appellee Insurance Environmental Litigation Association; Aetna Casualty and Surety Company, Amicus Curiae.

No. 92-2910.

United States Court of Appeals Eighth Circuit.

Submitted May 10, 1993.

Decided Oct. 1, 1993.

Rehearing Denied Nov. 3, 1993.

Erik Thomas Salveson, Minneapolis, MN, argued (David M. Coyne, on brief), for appellant.

John M. Anderson, Minneapolis, MN, argued (Charles E. Lundberg, on brief), for appellee.

Before BEAM, LOKEN, and MORRIS SHEPPARD ARNOLD, Circuit Judges.

LOKEN, Circuit Judge.

In this diversity action, plaintiff Bureau of Engraving, Inc., ("BE"), appeals the district court's ¹ decision that BE's claim for costs incurred in cleaning up two hazardous waste sites is barred by the pollution exclusion in Federal Insurance Company's ("Federal") comprehensive general liability ("CGL") insurance policies. Having concluded after de novo review that the district court correctly interpreted and applied Minnesota law, we affirm.

I.

BE manufactures printed circuit boards through a process that uses chemical etchants. Spent or waste etchants contain metals and are classified as toxic and hazardous wastes. From 1974 to 1978, BE shipped liquid waste etchants to Ecolotech, Inc., based upon Ecolotech's representations that it would recycle the wastes using environmentally safe processes to recover usable metals. Instead, Ecolotech stored the wastes of BE and other generators at two Twin City locations until the Minnesota Pollution Control Agency discovered that surrounding soil and groundwater had been contaminated by releases of these hazardous wastes. When Ecolotech defaulted, the Agency demanded that BE and other known generators clean up the mess. BE ultimately spent approximately $500,000 in a successful effort to "remediate" the Ecolotech sites.

During this same period, the United States Environmental Protection Agency proceeded against waste generators to compel the cleanup of several sites in Isanti County, Minnesota. One of the companies sued by EPA brought a third-party action against BE, alleging that BE had contributed hazardous wastes to the Isanti sites. BE eventually settled this claim for $45,000.

Since 1973, BE has been covered by CGL policies in which Federal agreed to indemnify BE for "bodily injury, property damage, or personal injury caused by an occurrence." Prior to 1986, the policies contained a "pollution exclusion" that excluded coverage for releases of contaminants and pollutants unless "such discharge, dispersal, release or escape is sudden and accidental." The policies issued to BE after 1986 contain what is known as an absolute pollution exclusion; BE concedes that it is not entitled to coverage under these policies.

BE filed claims under the pre-1986 CGL policies for its costs in cleaning up the Ecolotech and Isanti sites. When Federal refused to defend or indemnify based upon the pollution exclusion, BE commenced this declaratory judgment action in state court. Federal removed and later moved for summary judgment. Relying on the Minnesota Court of Appeals' decision in Sylvester Bros. Dev. Co. v. Great Central Ins. Co., 480 N.W.2d 368 (Minn.App.1992) ("Sylvester I "), the district court held that the releases of hazardous contaminants at the Ecolotech and Isanti sites were not "sudden and accidental" and therefore the pollution exclusion barred BE's claims. Bureau of Engraving v. Federal Ins. Co., 793 F.Supp. 209 (D.Minn.1992).

II.

On appeal, BE argues that Sylvester I is inconsistent with the earlier Court of Appeals decision in Grinnell Mut. Reinsur. Co. v. Wasmuth, 432 N.W.2d 495 (Minn.App.1988), and the district court erred in following Sylvester I. These decisions of the Minnesota intermediate appellate court are not binding on us, "but they are persuasive authority, and we must follow them when they are the best evidence" of Minnesota law. Garnac Grain Co. v. Blackley, 932 F.2d 1563, 1570 (8th Cir.1991). Thus, after Salve Regina College v. Russell, 499 U.S. 225, 111 S.Ct. 1217, 113 L.Ed.2d 190 (1991), we must determine de novo (i) whether Sylvester I and Grinnell are inconsistent; (ii) if so, which one we believe the Supreme Court of Minnesota would follow; and (iii) if not, whether the district court correctly applied Sylvester I to the facts of this case.

In Grinnell, formaldehyde gas seeped from insulation shortly after a home was remodeled, causing extensive damage. The Court of Appeals held that the loss was covered under the contractor's CGL policy despite a pollution exclusion. Describing the case as "unusual," the Grinnell panel unanimously found the claim covered under the doctrine of reasonable expectations because a lay insured would not expect the pollution exclusion to bar coverage for damage caused by the leakage of gas from negligently installed home insulation. The panel additionally ruled, with one judge dissenting, that the "sudden and accidental" exception to the pollution exclusion was ambiguous in this context and therefore the exclusion did not apply. The majority acknowledged that many courts in other States have found this language unambiguous, but only in cases involving a "typical pollution claim," such as the "leaking or disposal of hazardous substances over a lengthy period of time." 432 N.W.2d at 500.

In Sylvester I, a different panel of the Court of Appeals dealt with a more typical pollution claim for costs incurred in cleaning up pollutants that had leached from a landfill. The court held that in this context the language of the "sudden and accidental" exception is unambiguous "Sudden" in the context of the policies carries the temporal connotation of "abruptness." "Sudden" means the incident at issue occurs relatively quickly rather than gradually over a long period of time.... "Unexpected" is not a reasonable interpretation [of "sudden"] in the context of the policies because "unexpected" is conveyed by the term "accidental." If "sudden" meant "unexpected," "sudden" would become superfluous and repetitious in the policies' use of the phrase ...