Chesapeake Utilities Corp. v. American Home Assur.

• Decision Date: 09 January 1989
• Docket Number: Civ. A. No. 86-501-JLL.
• Citation: 704 F. Supp. 551
• Parties: CHESAPEAKE UTILITIES CORPORATION, Plaintiff, v. AMERICAN HOME ASSURANCE COMPANY, et al., Defendants.
• Court: U.S. District Court — District of Delaware

704 F. Supp. 551

CHESAPEAKE UTILITIES CORPORATION, Plaintiff, v. AMERICAN HOME ASSURANCE COMPANY, et al., Defendants.

Civ. A. No. 86-501-JLL.

United States District Court, D. Delaware.

January 9, 1989.

William A. Denman and Douglas B. Catts of Schmittinger & Rodriguez, P.A., Dover, Del., for plaintiff Chesapeake Utilities Corp.

William F. Taylor and Anthony G. Flynn of Young, Conaway, Stargatt and Taylor, Wilmington, Del.; James P. Schaller, M. Elizabeth Medaglia, and Richard W. Bryan of Jackson & Campbell, P.C., Washington, D.C., of counsel, for defendant American Home Assur. Co.

James W. Semple of Morris, James, Hitchens & Williams, Wilmington, Del., for defendant Hartford Acc. and Indem. Co.

Richard W. Pell of Tybout, Redfearn, Casarino & Pell, Wilmington, Del.; Eileen B. Eglin and J. Marks Moore, III of Wilson, Elser, Moskowitz, Edelman & Dicker, Baltimore, Md., of counsel, for defendant Bellefonte Ins. Co.

David R. Hodas of Potter, Carmine & Hodas, Wilmington, Del.; Mary Kay Vyskocil and Andrew Amer of Simpson, Thacher & Bartlett, New York City, of counsel, for defendant Travelers Indem. Co.

J.R. Julian, Wilmington, Del.; Thomas J. Quinn, John S. Spadaro, and Mary Ann D'Amato of Mendes & Mount, New York City, of counsel, for defendant London Market Insurers.

John G. Mulford of Theisen, Lank, Mulford & Goldberg, Wilmington, Del.; James W. Greene of Bromley, Brown & Walsh, Washington, D.C., of counsel, for defendant Continental Cas. Co.

Robert K. Payson of Potter, Anderson & Corroon, Wilmington, Del.; Michael Harwood and Douglas M. Parker of Mudge, Rose, Guthrie, Alexander & Ferdon, New York City, of counsel, for defendant Stone & Webster Management Consultants, Inc.

Kevin Gross of Morris, Rosenthal, Monhait & Gross, P.A., Wilmington, Del.; Roger E. Warin and Karen E. Rochlin of Steptoe & Johnson, Washington, D.C., of counsel, for defendant Home Ins. Co. Edward McNamara and Robert J. Taylor of Barros, McNamara & Scanlon, P.A., Dover, Del., for defendant Associated Elec. and Gas Ins. Services, Inc.

Edmund D. Lyons, Jr. of Aerenson, Ferrara & Lyons, Wilmington, Del.; Dennis M. Flannery, A. Stephen Hut, Jr., and Michael C. Small of Wilmer, Cutler & Pickering, Washington, D.C., of counsel, for defendant Ins. Co. of North America.

REVISED MEMORANDUM OPINION

LATCHUM, Senior District Judge.

I. INTRODUCTION

This diversity action arises out of environmental contamination claims asserted by governmental entities against plaintiff Chesapeake Utilities Corporation ("Chesapeake"). (Docket Item "D.I." 152 at 711.) Chesapeake alleges that as a result of these environmental claims, it was forced to incur certain costs for which it sought recovery from various insurance companies ("defendants" or "insurers") which had written liability insurance policies for Chesapeake. (D.I. 152 at 1.) After these insurers refused to defend and indemnify Chesapeake for the environmental claims, Chesapeake brought this action against the insurers seeking damages and declaratory relief.¹ (D.I. 80 at ¶¶ 21, 69; D.I. 152 at 1.)

Presently before the Court are summary judgment motions filed by seven of the defendant insurers.² For the reasons set forth in this Memorandum Opinion, the insurers' motions will be denied in all respects.

II. FACTS

Chesapeake's predecessors³ formerly operated two coal gas manufacturing facilities — one at Salisbury, Maryland, and the other at Dover, Delaware. Chesapeake's disposal of coal tar, a by-product of the coal gas manufacturing process, gave rise to the environmental claims which underlie the instant litigation.

At the Salisbury, Maryland site, Chesapeake manufactured coal gas during the period 1907 through 1950. (D.I. 152 at 6.) In 1950, the operations at the Maryland site were converted from coal gas to propane gas. Id. Pursuant to the conversion, portions of the facility were dismantled and an unspecified quantity of coal tar was left at the site. Id. at 6-7.

In 1984 the State of Maryland placed the Maryland site on a list of potentially hazardous waste sites.⁴ (D.I. 152 at 7.) After conducting a preliminary on-site assessment, the State recommended a more thorough investigation with appropriate soil sampling. (D.I. 80 at ¶ 61; D.I. 152 at 8; D.I. 152A at 69.) The State also allegedly demanded that Chesapeake undertake, at its own expense, a groundwater investigation of the site. (D.I. 80 at ¶ 68; D.I. 152 at 8; D.I. 152A at 109.) Under pressure from the State of Maryland,⁵ Chesapeake hired an outside consultant and incurred various costs in an effort to remedy the pollution at the site. (D.I. 80 at ¶¶ 60-68; D.I. 152 at 7-8.)

As for the Dover, Delaware site, a decision was made in 1948 to dismantle the coal gas plant.⁶ (D.I. 131A at 14; D.I. 152 at 5.) In the process of demolishing the coal gas plant, quantities of coal tar were buried at the site. (D.I. 152 at 6.) The site of the coal gas plant was conveyed to the State of Delaware in 1949 (D.I. 80 at ¶ 14; D.I. 152 at 6; D.I. 152A at 1-7), and much later was selected by the State as the location for a new Family Court building. (D.I. 80 at ¶ 16; D.I. 152 at 9-10.) During an inspection of the site in preparation for construction of the Family Court building, the State discovered waste materials in the soil and groundwater. (D.I. 80 at ¶ 16; D.I. 152 at 8-9.)

In contrast to the Maryland site — where Chesapeake incurred clean-up costs at the direction of the State of Maryland — the State of Delaware itself incurred expenses in monitoring and cleaning up the Dover site. (See D.I. 152 at 9; D.I. 152A at 41.) The State of Delaware asserted claims against Chesapeake, seeking reimbursement for past costs incurred by the State, and contending that Chesapeake would be liable for any future clean-up costs.⁷ (D.I. 80 at ¶¶ 17-20; D.I. 152 at 8-9.) According to the State, the legal bases for Chesapeake's liability included: 7 Del.Code § 6308; CERCLA; negligence; strict liability; trespass; and nuisance. (D.I. 80 at ¶ 18; D.I. 152 at 9; D.I. 152A at 38.)

On February 21, 1986, Chesapeake and the State of Delaware entered into a settlement agreement, under the terms of which Chesapeake paid $200,000 to the State. (D.I. 80 at ¶ 22; D.I. 152 at 9-10; D.I. 152A at 74-83.) This sum represented reimbursement to the State for certain response costs, and the release of Chesapeake from any claims resulting from the State's acquisition of the site, or for construction delays, diminution of fair market value, attorneys fees, interest or punitive damages. (D.I. 80 at ¶ 22; D.I. 152 at 9-10.) The settlement agreement did not, however, relieve Chesapeake of any potential liability for future environmental assessments or remedial actions. (D.I. 80 at ¶ 23; D.I. 152 at 10; D.I. 152A at 77.)

In addition to the State of Delaware, the United States Environmental Protection Agency ("EPA") also investigated the Dover site. (D.I. 152 at 10-11.) The EPA has threatened to hold Chesapeake liable for remedial actions at the site, including investigation, planning, clean-up, and enforcement measures. (D.I. 152A at 112-116.)

Chesapeake allegedly notified the defendant insurers of the above claims (brought by the States of Maryland and Delaware and by the EPA), and requested the insurers to defend and indemnify Chesapeake on the claims. (D.I. 80 at ¶¶ 21, 69; D.I. 152 at 1.) Following the insurers' refusal to defend and indemnify, Chesapeake brought this action seeking damages and declaratory relief. (D.I. 152 at 1.)

The insurers have denied coverage and now move for summary judgment based upon their reading of certain language present in the liability insurance contracts. The INA policies are illustrative:⁸

The insurer shall pay on behalf of the insured all sums which the insured shall become obligated to pay by reason of liability for damages because of injury to or destruction of property, including the loss of use thereof, caused by accident and arising out of the operations of the insured as defined herein.

(D.I. 131A at 43, 58 (emphasis added).)

Based upon the foregoing contractual language the defendants posit three arguments in support of their summary judgment motions. First, with respect to the Maryland site, the insurers argue that Chesapeake's clean-up activities are equitable remedies, not legal damages, and hence under Maryland law they are not covered. (D.I. 131 at 3.) This first argument, which is founded upon Maryland Casualty Co. v. Armco, Inc., 822 F.2d 1348 (4th Cir.1987), cert. denied, ___ U.S. ___, 108 S.Ct. 703, 98 L.Ed.2d 654 (1988), is discussed in part III.B. of this opinion, infra.

Secondly, defendants raise a similar argument regarding the Delaware site — that is, that clean-up costs are not covered "damages" but rather are a form of equitable relief. (D.I. 131 at 3-4.) This argument, as defendants correctly state, would require the Court to revisit its recent interpretation of Delaware law in New Castle County v. Hartford Accident and Indemnity Co., 673 F.Supp. 1359 (D.Del.1987). The defendants' second argument is addressed in part III.C.2. of this opinion, infra.

The defendants' third and final argument relates only to the Delaware site, not the Maryland site. The insurers agreed to cover Chesapeake's liability for losses "arising out of the operations of the insured as defined herein." (D.I. 131A at 43, 58 (emphasis added).) The policies then proceed to define operations as "the manufacture, distribution and sale of enriched propane gas...." (D.I. 152A at 60, 77.) Defendants emphasize that coal tar — the source of pollution at the Delaware site — is a by-product of coal gas production, but not of propane gas production. (D.I. 131 at 14-15.) Hence, say defendants, claims arising from the burial of coal tar fall beyond the scope of "operations" as defined in the policies, and are not covered. Id. The Court considers this argument in part III. C.1. of the opinion, infra.

III. ANALYSIS

A. Choice Of Law

1. Where Contract Is Silent

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