Cotter v. AMER. EMPIRE SURPLUS LINES INS.

• Decision Date: 29 August 2002
• Docket Number: No. 01CA1791.,01CA1791.
• Citation: 64 P.3d 886
• Parties: COTTER CORPORATION, Plaintiff-Appellant, v. AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY, Great American Insurance Company, American National Fire Insurance Company, American Employers' Insurance Company, Lexington Insurance Company, Granite State Insurance Company, and First State Insurance Company, Defendants-Appellees.
• Court: Colorado Court of Appeals

64 P.3d 886

COTTER CORPORATION, Plaintiff-Appellant, v. AMERICAN EMPIRE SURPLUS LINES INSURANCE COMPANY, Great American Insurance Company, American National Fire Insurance Company, American Employers' Insurance Company, Lexington Insurance Company, Granite State Insurance Company, and First State Insurance Company, Defendants-Appellees.

No. 01CA1791.

Colorado Court of Appeals, Div. II.

August 29, 2002.

Certiorari Granted March 3, 2003.

Moye, Giles, O'Keefe, Vermeire & Gorrell, LLP, John L. Watson, Leonard H. MacPhee, Denver, Colorado, for Plaintiff-Appellant.

Faegre & Benson, LLP, Robert L. Matthews, Boulder, Colorado; Lord, Bissell & Brook, A. Kelly Turner, Sarah H. Dearing, Chicago, Illinois, for Defendant-Appellee American Empire Surplus Lines Insurance Company.

McGloin, Davenport, Severson and Snow, Michael M. McGloin, Denver, Colorado, for Defendants-Appellees Great American Insurance Company and American National Fire Insurance Company.

Markusson, Green & Jarvis, P.C., H. Keith Jarvis, Kirstin G. Lindberg, Denver, Colorado, for Defendant-Appellee American Employers' Insurance Company.

Wood, Ris & Hames, P.C., Clayton B. Russell, Denver, Colorado; Sinnott Dito Moura & Puebla, P.C., J. Karren Baker, San Francisco, California, for Defendants-Appellees Lexington Insurance Company and Granite State Insurance Company.

Hogan & Hartson, L.L.P., Charles T. Mitchell, Denver, Colorado, George W. Mayo, Jr., Washington, D.C., for Defendant-Appellee First State Insurance Company.

Powers Phillips, P.C., Joanne M. Zboyan, Denver, Colorado, for Amicus Curiae Complex Insurance Claims Litigation Association.

Opinion by Judge TAUBMAN.

In this declaratory judgment action, plaintiff, Cotter Corporation, appeals various summary judgments entered against it and in favor of defendants, seven insurance companies, on the basis that three different pollution exclusion clauses in their policies excluded coverage for claims brought by subdivision residents who allegedly were harmed by pollution from Cotter's uranium mill. Because we conclude that the policies issued by the seven defendant insurance companies — American Empire Surplus Lines Insurance Company, Great American Insurance Company, American National Fire Insurance Company, American Employers' Insurance Company, Lexington Insurance Company, Granite State Insurance Company, and First State Insurance Company — did not require these insurers to provide coverage or a defense to Cotter, we affirm.

I. Background

The controversy here concerns Cotter's operation of a uranium mill on a 1.4-squaremile site in Canon City, Colorado, from approximately 1958 until 1986. The site contains an inactive alkaline leach process mill, an old tailings pond disposal area, and a new tailings pond disposal area. Following the construction of the Cotter mill in 1957, the mill operators began extracting a crude uranium oxide known as "yellowcake" from uranium ore. After crushing and processing the uranium oxide, the yellowcake was transported to Illinois for use by Cotter's parent company.

As part of the milling process, a large residue of liquid sludge, called tailings or raffinates, was piped into the tailing ponds. The tailings contained a small amount of residual uranium that had about eighty-five percent of the radioactivity of the original ore. The tailings also contained nonradioactive hazardous materials such as molybdenum, nickel, arsenic, and selenium.

In 1989, 532 residents of Lincoln Park, the Canon City subdivision near the Cotter mill, sued Cotter, its parent corporation, and others in federal district court in Colorado. Boughton v. Cotter Corp., No. 89-2-1505 (D. Colo. filed Sept. 1989). Plaintiffs alleged that material from Cotter's uranium mill had seeped from the tailings ponds into their neighborhood, causing personal injury, property damage, and economic harm.

In 1991, another sixty-seven plaintiffs filed a similar action. Dodge v. Cotter Corp., No. 91-2-1861 (D. Colo. filed Oct. 24, 1991). Cotter gave timely notice of the Boughton and Dodge claims to its insurers, the defendants here, all of whom denied coverage and refused to defend or indemnify Cotter, based upon pollution exclusion clauses in their policies.

At issue here are the following policies: a Lexington commercial liability policy, effective August 1987 to August 1988; an American Empire policy, effective August 1995 to August 1996; seven policies issued by Great American and American National, effective June 1975 through August 1986; three American Employers' primary policies, effective June 1971 through June 1974; an American Employers' umbrella policy, effective October 1970 through January 1973; four Lexington excess insurance policies, effective January 1974 to June 1979; a Granite State excess policy, effective June 1982 to June 1983; and a First State excess umbrella policy, effective March 1977 to June 1978.

Following a bellwether trial in the Boughton case resulting in a judgment against Cotter for nearly $80,000, Cotter entered into a confidential settlement with the remaining Boughton plaintiffs. See In re Chevron U.S.A., Inc., 109 F.3d 1016, 1019-20 (5th Cir.1997)

(bellwether trial addresses claims of some members of a large group to enhance the prospects of settlement and to resolve common issues). In Dodge, several trials resulted in jury verdicts against Cotter for more than $16 million, and with interest, the judgment exceeded $43 million. Cotter has appealed those judgments to the Tenth Circuit Court of Appeals, and those appeals are pending.

Seeking coverage for its liability in the Boughton and Dodge cases, Cotter then filed this declaratory judgment action. Between October 1998 and May 2001, the trial court granted summary judgments in favor of the insurers based upon qualified pollution exclusions in their policies. The trial court determined that because Cotter had expected and intended a discharge of pollutants from the tailings ponds during the policy periods, the exception to the qualified pollution exclusions did not require the insurers to provide coverage to Cotter. As relevant here, the trial court also concluded that two excess insurers, American Empire and First State, had no duty to defend Cotter.

The trial court granted Lexington's summary judgment based upon an absolute pollution exclusion, because it was undisputed that Cotter had discharged contaminants into the land and atmosphere.

As discussed in more detail below, the qualified pollution exclusion is so named because it excludes from coverage all pollution-related injuries, but is limited or "qualified" by an exception that restores coverage for "sudden and accidental" events or "sudden, unintended and unexpected happening[s]." In contrast, those policies containing an absolute pollution exclusion do not contain such a limiting provision.

From these summary judgments, Cotter now appeals.

II. Standard of Review

We review a summary judgment de novo, applying the same standards that govern the trial court's determination. Summary judgment is warranted only when there is a clear showing that no genuine issue exists as to any material fact and that the moving party is entitled to judgment as a matter of law. C.R.C.P. 56(c); Churchey v. Adolph Coors Co., 759 P.2d 1336 (Colo.1988); Waskel v. Guar. Nat'l Corp., 23 P.3d 1214 (Colo.App. 2000).

The moving party has the initial burden to show that there is no genuine issue of material fact. The burden then shifts to the nonmoving party to establish that there is a triable issue of fact. AviComm, Inc. v. Colo. Pub. Util. Comm'n, 955 P.2d 1023 (Colo. 1998).

The nonmoving party is entitled to all favorable inferences that may be drawn from the undisputed facts, and all doubts as to whether a triable issue of fact exists must be resolved against the moving party. Compass Ins. Co. v. City of Littleton, 984 P.2d 606 (Colo.1999).

III. Qualified Pollution Exclusion Clauses

Cotter contends that the trial court improperly interpreted the qualified pollution exclusion clauses in the policies at issue. It further argues that under the correct interpretation, disputed issues of material fact prevent summary judgment. We disagree.

A. Contract Interpretation

At issue here is the interpretation of the various "sudden and accidental" and "sudden, unintended and unexpected" exceptions to the pollution exclusion clauses.

The pollution exclusion in the policies issued by Great American, Granite State, Lexington, and American Employers' reads as follows:

This insurance does not apply:

. . .

to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release, or escape is sudden or accidental.

(Emphasis added.) American Empire's pollution exclusion clause is identical, but applies only to bodily injury.

In contrast, First State's pollution exclusion clause reads as follows:

The Insurance does not cover any liability for:

(1) Personal Injury or Bodily Injury or loss of or damage to or loss of use of property directly or indirectly caused by seepage, pollution, or contamination, provided always that this clause shall not apply to liability for Personal Injury or Bodily Injury or loss of or physical damage to or destruction of tangible property, or loss of use of such property damaged or destroyed, where such seepage, pollution or contamination is caused by a sudden, unintended and unexpected happening during the period of this insurance.

(Emphasis added.)

The crux of the dispute here is Cotter's contention that the phrase "unexpected and unintended" refers to whether Cotter expected or intended to harm the environment offsite from the mill facility. In other words,...