Certain Underwriters At Lloyd's, London, & Certain London Mktg. Ins. Cos. v. S. Natural Gas Co.

• Decision Date: 20 September 2013
• Docket Number: 1110698 and 1110769.
• Citation: 142 So.3d 436
• Parties: CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, and Certain London Marketing Insurance Companies v. SOUTHERN NATURAL GAS COMPANY. Southern Natural Gas Company v. Certain Underwriters at Lloyd's, London, and Certain London Marketing Insurance Companies.
• Court: Alabama Supreme Court

142 So.3d 436

CERTAIN UNDERWRITERS AT LLOYD'S, LONDON, and Certain London Marketing Insurance Companies

v.SOUTHERN NATURAL GAS COMPANY.

Southern Natural Gas Company

v.Certain Underwriters at Lloyd's, London, and Certain London Marketing Insurance Companies.

1110698 and 1110769.

Supreme Court of Alabama.

June 28, 2013.

Rehearing Denied Sept. 20, 2013.

W. Christian King and Nikaa B. Jordan of Lightfoot, Franklin & White, L.L.C., Birmingham; Jay Russell Sever and Jonathan B. Womack of Phelps Dunbar LLP, New Orleans, Louisiana; and Richard W. Lewis of Austill Lewis & Pipkin, PC, Birmingham, for appellants/cross-appellees Certain Underwriters at Lloyd's London, and Certain London Marketing Insurance Companies.

Christopher J. Williams of Maynard, Cooper & Gale, PC, Birmingham; and Michael John Miguel of K&L Gates LLP, Los Angeles, California, for appellee/cross-appellant Southern Natural Gas Company.

BOLIN, Justice.

This appeal and cross-appeal result from a multiphase trial involving liability-insurance policies regarding coverage of environmental-remediation costs. On October 15, 2001, Southern Natural Gas Company (“Sonat”) sued Certain Underwriters at Lloyd's, London, and Certain London Marketing Insurance Companies (hereinafter referred to collectively as “LMI”) alleging that LMI had breached numerous umbrella and excess-liability-insurance policies by failing to pay Sonat for certain environmental-remediation costs. This is the third time this case has come before this Court. See Certain Underwriters at Lloyd's, London v. Southern Natural Gas Co., 939 So.2d 21 (Ala.2006) (dismissing appeal following Phase I of the trial as not being from a final judgment); Certain Underwriters at Lloyd's, London v. Southern Natural Gas Co., 41 So.3d 56 (Ala.2009) (dismissing appeals following Phase II of the trial as not being from a final judgment). The trial court entered a summary judgment in favor of LMI during Phase III of the trial, adjudicating all the claims before it. The appeal and the cross-appeal are now properly before this Court.

Facts and Procedural History

Sonat operates a natural-gas pipeline that spans an area from Texas to Georgia. A series of 38 compressor stations are positioned on the pipeline (11 are located in Alabama) in order to maintain the flow of natural gas through the pipeline. Sonat's integrated pipeline system also includes numerous mercury-metering stations, 131 of which are in Alabama. The integrated pipeline system is controlled from Sonat's headquarters in Birmingham.

From 1957 to the early 1970s, Sonat employees used the lubricating oil, “Pydraul,” in the air-compressor engines at the compressor stations. In 1989, Sonat learned that Pydraul contained the toxin polychlorinated biphenyl (“PCB”). Environmental testing conducted by Sonat on its own initiative revealed the presence of PCBs at 13 of the 38 compressor stations. Sonat conducted remedial activities at the compressor stations to remove the PCB and to prevent further migration of the PCB into the groundwater.

Sonat also discovered that mercury may have been discharged from mercury-metering stations located along the pipeline. For years, Sonat used manometers or mercury-metering stations along its pipeline to measure the flow of natural gas through its pipeline. The mercury meters were used to determine if there were leaks in the pipeline and to determine customers' gas usage for billing purposes. Those mercury meters were eventually replaced with newer technology. However, in 1992, the Environmental Protection Agency (“the EPA”) notified other gas-pipeline companies that mercury meters may have leaked. Sonat was notified in 1994 by the Louisiana Department of Environmental Quality that it had begun investigating Sonat's mercury meters located in Louisiana. In 1994, Sonat conducted remedial activities at hundreds of its mercury stations to prevent further migration of mercury into the groundwater.

LMI had issued umbrella and excess-liability-insurance policies to Sonat from 1949 to 1987. Most of the policies in effect during those years defined an “occurrence” as:

“An accident or a happening, event or a continuous or repeated exposure to conditions which results unexpectedly and unintentionally as applied to the Assured seeking indemnity hereunder, in ... property damage ... during the policy period. All such exposures to substantially the same general conditions existing at or emanating from one premises location shall be deemed one occurrence.”

Other policies in effect during those years defined an occurrence as “one happening or series of happenings arising out of or caused by one event taking place during the term of this contract.” All the policies limited coverage to sums Sonat became “legally obligated” to pay “as damages.” The policies barred coverage of claims for damage to property “owned by” Sonat.

On August 28, 1991, and September 3, 1991, Sonat notified LMI of the PCB contamination at the 13 compressor stations.¹ Sonat informed LMI that it was informing all affected underwriters of Sonat's potential liability with regard to the contamination cleanup costs. On November 2, 1994, Sonat sent LMI notice that the cleanup process was completed.

On November 13, 1995, LMI issued a reservation-of-rights letter to Sonat. In that letter, LMI asked for copies of additional underlying policies from 1959 to 1962, in order to determine coverage for contamination at the compressor sites under the umbrella and excess-liability-insurance policies issued by LMI. LMI reserved its right to deny coverage under the policies issued from 1962 to 1978 for several reasons. LMI also reserved its right to deny coverage in “Whiteshield No. 31” and “Pike County Drum Superfund.” ²

In 1996, Sonat notified LMI that it would appear from the cost of the cleanup that LMI's policies would not be impacted. However, Sonat reserved its rights to seek coverage under the policies in the event that Sonat received allegations of third-party property damage or bodily injury.

Subsequently, Sonat notified LMI that it would be seeking coverage for its PCB and mercury-remediation programs under the umbrella and excess-liability policies issued by LMI. In July 2001, LMI filed a declaratory-judgment action against Sonat in Georgia, seeking a resolution of the coverage issue. The Georgia action was removed to federal court and was later dismissed.

On October 15, 2001, Sonat filed in the Jefferson Circuit Court a “an action for a declaratory judgment and for breach of contract and anticipatory breach of contract and avoidance of contractual obligations under umbrella and excess liability insurance policies” ³ against LMI. In its complaint, Sonat asserted that the EPA, “other governmental agencies and departments and/or private parties,” including Alabama residents, “have brought or asserted lawsuits, claims, and demands against Sonat alleging property damage, personal injury, bodily injury, and other damage[ ] and causes of action, including, without limitation, nuisance, trespass, negligence and strict liability, allegedly as a result of Sonat's operations and ownership” of the natural-gas integrated-pipeline system. Sonat asserted that it has “paid substantial amounts under legal obligation for the remediation of damage in, at, and around the vicinity of compressor stations, and for mercury damage arising from mercury meters.”

Sonat alleged as follows:

“Claims, demands and suits have been asserted against Sonat concerning property damage and other damages arising out of Sonat's integrated operations at compressor stations—including 11 compressor stations located in the State of Alabama. The claimants in the environmental actions, allege, inter alia, damage and other injury based on purported damage including the presence of polychlorinated biphenyls and other substances of concern including petroleum-related hydrocarbons, volatile organic chemicals, semi-volatile organic chemicals, polycyclic aromatic hydrocarbons, and various metals, in the groundwater, surface water, air and general environment in, at, around, and in the vicinity of the compressor stations. Claimants seek damages for past and future response costs for alleged property damage and personal injury which is continuous and progressive, beginning in or before 1949 and extending until at least 1986. The monies spent and to be spent in response to demands of a governmental agency, or a private party are ‘damages' under the Liability Insurance Policies. Alabama Plating Co. v. United States Fidelity and Guar. Co., 690 So.2d 331 (Ala.1997). As such, the Liability Insurance Policies respond to and are required to pay for all damages because of property damage, bodily injury or personal injury (or a combination thereof) which Sonat is or becomes legally obligated to pay as respects the compressor stations. The damages that Sonat has paid or is likely to become legally obligated to pay because of property damage, bodily injury and personal injury arising out of environmental and tort actions concerning Sonat's compressor stations are within the jurisdictional limits of this Court.

“Claims, demands and suits have been asserted against Sonat concerning property damage and other damage[ ] arising out of Sonat's integrated operations at mercury metering stations—including 131 mercury metering stations located in the State of Alabama. The claimants in the environmental and tort actions, allege, inter alia, damage and other injury based on purported damage including the presence of mercury in the groundwater, surface water, air and general environment in, at, around, and in the vicinity of the mercury metering stations. Claimants seek damages for past and future response costs for alleged property damage which is continuous and progressive, beginning in or before 1949 and extending until at least 1986. The monies spent and to be spent in response to demands of a governmental agency, or a private party are ‘...