Century Indem. Co. v. Aero-Motive Co.

• Decision Date: 28 May 2004
• Docket Number: No. 1:02-CV-108.,1:02-CV-108.
• Citation: 336 F.Supp.2d 739
• Parties: CENTURY INDEMNITY COMPANY, as successor to CCI Insurance Company, as successor to Insurance Company of North America, One Beacon Insurance Company, and Continental Insurance, Plaintiffs/Counterclaim-Defendants, v. AERO-MOTIVE COMPANY, Aero-Motive Manufacturing Company, William Becker, and Roger Becker, Defendants/Counterclaim-Plaintiffs.
• Court: U.S. District Court — Western District of Michigan

Page 739

336 F.Supp.2d 739

CENTURY INDEMNITY COMPANY, as successor to CCI Insurance Company, as successor to Insurance Company of North America, One Beacon Insurance Company, and Continental Insurance, Plaintiffs/Counterclaim-Defendants, v. AERO-MOTIVE COMPANY, Aero-Motive Manufacturing Company, William Becker, and Roger Becker, Defendants/Counterclaim-Plaintiffs.

No. 1:02-CV-108.

United States District Court, W.D. Michigan, Southern Division.

May 28, 2004.

COPYRIGHT MATERIAL OMITTED

Brian C. Coffey, William M. Cohn, Chicago, IL, Carole D. Bos, Susan Wilson Keener, Grand Rapids, MI, for plaintiffs.

David Bloss, Grand Rapids, MI, Kathleen A. McQueeny, Chicago, IL, for intervenor-plaintiff.

Eric C. Fleetham, Charles M. Denton, Matthew B. Eugster, Grand Rapids, MI, for defendants.

OPINION

QUIST, District Judge.

This case involves a dispute regarding insurance coverage for environmental damage. The insurers (collectively "Insurers"), Century Indemnity Company ("Century"), One Beacon Insurance Company ("One Beacon"), and Continental Insurance ("Continental"), filed claims seeking declarations that they are not obligated to Defendants (collectively "Aero") under certain policies the Insurers issued and that they are not obligated to satisfy a consent judgment (the "Consent Judgment") Defendants entered into. Presently before the Court are several motions for summary judgment filed by the Insurers and Aero concerning the enforceability and effect of the Consent Judgment as well various coverage defenses under the policies. The Court will rule as follows regarding the Consent Judgment: (1) the Consent Judgment is not binding upon the Insurers; (2) the Consent Judgment does not limit Aero II's claims against Continental or the other Insurers to $100,000 — the amount paid by the Beckers; (3) Century did not breach its duty to defend, and the Beckers were not entitled to enter into the Consent Judgment; and (4) the Beckers breached their duty to cooperate with Century by entering into the Consent Judgment with Aero II, thus relieving Century of its obligations to the Beckers under its policies. The Court will rule as follows regarding the remaining motions: (1) the Beckers failed to give timely notice of Aero II's claim to Continental, although Continental has failed to demonstrate prejudice from the late notice; (2) the limits of Continental's policy for the period from July 1, 1966, to August 11, 1967, are $25,000; and (3) One Beacon has no coverage obligation to Aero II under policy AW 40089-65 for the cleanup of the contamination at the site based upon the pollution exclusion set forth in the policy.

I. Facts and Procedural History

Defendant Aero-Motive Manufacturing Company ("Aero I") was formed in approximately 1939 and manufactured cable and hose reels until 1972. Defendants William Becker and Roger Becker (the "Beckers") owned and operated Aero I between 1960 and 1972. In 1972, Aero I sold its assets to Kalaco, Inc., a subsidiary of the Daniel Woodhead Company. Kalaco, Inc. later changed its name to Aero-Motive Manufacturing Company ("Aero II").

In the early 1990's, Aero II discovered contamination at the site of the Aero I manufacturing plant located on ML Avenue in Kalamazoo, Michigan (the "Property"), which Aero II had operated since 1972. Subsequent investigation revealed that contamination had migrated from the Property to an area one mile downgradient. As a result, Aero II was required to take remedial action in response to claims by the Michigan Department of Environmental Quality and incurred costs to clean up the contamination. In August 1995, Aero II notified the Beckers of their potential liability for the contamination and cleanup costs.

Century, Continental, and One Beacon, or their predecessors, issued comprehensive general liability policies to Aero I between January 1964 and July of 1972. Century's predecessor, Insurance Company of North America ("INA"), insured Aero I from January 19, 1964, to January 19, 1965, under Policy No. LAB 16925, and from January 19, 1965, to July 1, 1965, under Policy No. LAB 16994. Continental insured Aero I from July 1, 1965, to July 1, 1968, under Policy No. CBP 40559. One Beacon's predecessor, American Employers, insured Aero I from July 1, 1968, to July 1, 1971, under Policy No. A 13 40007-31, and from July 1, 1971, to July 1, 1972, under Policy No. AD 40018-13.¹ In addition to these policies (the "Primary Policies"), Aero I had coverage from August 11, 1964, to August 11, 1973, under excess umbrella policies (the "Excess Policies") issued by INA.

In 1999, Aero II filed suit against the Beckers, alleging that the Beckers were liable to Aero II for cleanup costs (the "Becker suit"). The Beckers notified Century, Continental, and One Beacon of the lawsuit. Century agreed to fund forty percent of the Beckers' defense costs, subject to a reservation of rights.² In 2001, Aero II filed suit against Aero I (the "Aero I suit") for recovery of clean-up costs. Century agreed to fund all of Aero I's defense costs in that suit, subject to a reservation of rights. Continental and One Beacon refused to pay defense costs for either lawsuit.

On February 7, 2002, a settlement conference was held in the Becker suit. As of that time, neither the Beckers nor Aero II had provided the Insurers with copies of their respective Primary Policies under which the Beckers claimed coverage because the actual policies were missing. Counsel for Aero II, Aero I, the Beckers, and the Insurers were present at the settlement conference. Client representatives from Continental and One Beacon were also present.³ During the conference, Aero II and the Beckers signed the $5 million Consent Judgment, which their counsel had previously negotiated, drafted, and finalized without notice to the Insurers. Pursuant to the terms of the Consent Judgment, the Beckers agreed to pay $100,000 to Aero II and Aero II agreed to seek the balance of the $5 million judgment from the Beckers' insurers. At the same time, Aero II and the Beckers executed a Confidential Settlement Agreement, pursuant to which the Beckers agreed to cooperate with Aero II in pursuing insurance coverage from the Insurers for the claims and damages covered by the Consent Judgment. The Confidential Settlement Agreement also contains a "reopener" which provides that the Beckers will be liable for up to an additional $50,000 if Aero II is unable to recover a specified minimum amount from the Insurers.

The Court rejected the initial draft of the Consent Judgment because it had concerns that language in the Consent Judgment could be construed as factual findings by the Court when, in fact, that was not the case. The Court was also concerned about the binding effect upon the Insurers. Thereafter, the parties made changes to the Consent Judgment, and the Court signed the revised version. The revised Consent Judgment does not contain any findings of fact such as would be found after trial or after a full review of the record upon summary judgment. Rather the "findings" were as presented to the Court by Aero and the Beckers, and even then the Court first rejected the proposed findings because there had not been a complete review of the record. The Court was familiar enough with the case, however, that it recognized that there was sufficient evidence in the record from which, after a one-sided look, the facts could be found. The Court rejected the proposed Consent Judgment until it was crystal clear that the Consent Judgment would be binding upon the parties "only" and "their successors, permitted assigns, heirs, privies and designees." The whole purpose for this required limitation, as has been repeatedly explained to Aero, was to avoid the very arguments that Aero is now making. The Beckers and Aero might have intended something different, of which they did not inform this Court when they submitted the Consent Judgment, but this Court knows what it signed, and what it signed should not be construed by anyone to give any advantage to Aero vis-a-vis the Insurers.

Century and One Beacon filed the instant action one day after the Court entered the Consent Judgment. Century and One Beacon sought in their complaint a declaration that they are not obligated to Aero under their respective policies and that they are not bound by the Consent Judgment. Subsequently, Aero obtained writs of garnishment against the Insurers in order to collect on the Consent Judgment. In response, Century and One Beacon moved to stay the garnishment proceeding and to quash Aero's notices of deposition and subpoenas. Aero then moved the Court to stay this action and to allow the Insurers' liability to be determined in the garnishment proceeding. On June 26, 2002, the Court entered an Order denying Aero's motion to stay this case and granting Continental's motion to intervene as a plaintiff. On June 27, 2002, the Court entered an Order granting Century and One Beacon's motion to stay the garnishment proceeding in the Becker suit. In its June 26, 2002, Order in this case, the Court set forth discovery, motion, and briefing deadlines regarding the issue of the existence or non-existence of potential insurance coverage. Thus, the Court determined that the initial phase of this action should be limited to determining whether Aero could establish the essential terms of the lost or missing insurance policies.

During the course of this case the Court has made two significant rulings. First, in its February 18, 2003, Opinion and Order, the Court determined that Aero had presented sufficient evidence to establish the existence and terms of all of the Primary Policies except Continental Policy No. CBP 40559, for the period July 1, 1966, to July 1, 1968. By Memorandum Order dated April 4, 2003, the Court granted Aero's motion for reconsideration with regard to Continental Policy No. CBP 40559, for the period July 1, 1966, to July 1, 1968, although the Court noted that there...