CPC Intern., Inc. v. Aerojet-General Corp.

• Decision Date: 21 May 1993
• Docket Number: 1:89-CV-961.,No. 1:89-CV-503,1:89-CV-503
• Citation: 825 F. Supp. 795
• Parties: CPC INTERNATIONAL, INC., Plaintiff, v. AEROJET-GENERAL CORPORATION, et al., Defendants. UNITED STATES of America, Plaintiff, v. CORDOVA CHEMICAL COMPANY OF MICHIGAN, et al., Defendants. CPC INTERNATIONAL, INC., Third-Party Plaintiff, v. COMMERCIAL UNION INSURANCE COMPANY, et al., Third-Party Defendants.
• Court: U.S. District Court — Western District of Michigan

825 F. Supp. 795

CPC INTERNATIONAL, INC., Plaintiff, v. AEROJET-GENERAL CORPORATION, et al., Defendants.

UNITED STATES of America, Plaintiff, v. CORDOVA CHEMICAL COMPANY OF MICHIGAN, et al., Defendants.

CPC INTERNATIONAL, INC., Third-Party Plaintiff, v. COMMERCIAL UNION INSURANCE COMPANY, et al., Third-Party Defendants.

Nos. 1:89-CV-503, 1:89-CV-961.

United States District Court, W.D. Michigan, S.D.

May 21, 1993.

COPYRIGHT MATERIAL OMITTED

J. Michael Smith, Miller, Johnson, Snell & Cummiskey, Grand Rapids, MI, Randy M. Mott, Robert T. Lee, Stephen E. Williams, Troy, Gould & Mott, Washington, DC, William S. Wells, CPC Intern., Inc., Englewood Cliffs, NJ, David L. Harris, Patrick J. Conlon, Lowenstein, Sandler, Kohl, Fisher & Boylan, Roseland, NJ, for CPC Intern., Inc.

Carole D. Bos, Kevin J. O'Dowd, Ronald M. Stella, Buchanan & Bos, Grand Rapids, MI, Richard A. Fogel, William M. Savino, M. Paul Gorfinkel, Rivkin, Radler, Bayh, Hart & Kremer, Uniondale, NY, for Commercial Union Ins. Co.

Stanley A. Prokop, Hans H.J. Pijls, Plunkett & Cooney, PC, Detroit, MI, for Home Ins. Co.

Timothy F. Casey, Kohl, Secrest, Wardle, Lynch, Clark & Hampton, Farmington Hills, MI, Sheldon Karasik, Peter M. Papasavas, Sheft & Sweeney, New York City, for Ins. Co. of State of PA.

Richard L. Davidson, Tucker & Rolf, Southfield, MI, Robert J. Bates, Jr., Linda J. Chase, Jr., Maria Enriquez, Pope & John, Ltd., Chicago, IL, Peter B. Kupelian, Tucker & Rolf, PC, Southfield, MI, for Zurich Ins. Co.

Lynn L. Lower, Strobl & Manoogian, PC, Bloomfield Hills, MI, for Affiliated FM Ins. Co., third-party defendant.

Grant J. Gruel, Thomas R. Behm, Scott R. Melton, Gruel, Mills, Nims & Pylman, Grand Rapids, MI, Irene A. Sullivan, Timothy G. Reynolds, Skadden, Arps, Slate, Meagher & Flom, New York City, for North Star Reinsurance Corp.

Reynolds A. Brander, Jr., Cholette, Perkins & Buchanan, Grand Rapids, MI, for Intern. Ins. Co.

Randall E. Phillips, William J. Selinsky, Marilyn A. Madorsky, Provizer, Lichtenstein, Pearlman & Phillips, PC, Southfield, MI, Sheldon Karasik, Peter M. Papasavas, Peter H. Dutz, Sheft & Sweeney, New York City, for Highlands Ins. Co.

Charles W. Browning, Alison L. Thorburn, Vandeveer, Garzia, PC, Detroit, MI, for Aetna Cas. and Sur. Co.

Jack L. Hoffman, Gary A. Maximiuk, Wheeler Upham, PC, Grand Rapids, MI, for Newington, Ltd. James R. Nelson, Nelson & Kreuger, PC, Grand Rapids, MI, Richard A. Fogel, William M. Savino, M. Paul Gorfinkel, Rivkin, Radler, Bayh, Hart & Kremer, Uniondale, NY, for Fireman's Fund Ins. Co.

William F. Jerome, State of NY Ins. Dept., New York City, for Midland Ins. Co.

Joel S. Huyser, Gregory G. Timmer, Rhoades, McKee, Boer, Goodrich & Titta, Grand Rapids, MI, Eileen B. Eglin, Stephen D. Straus, Wilson, Elser, Maskowitz, Edelman & Dicker, New York City, for Northwestern Nat. Ins. Co.

Charles N. Dewey, Jr., Dilley, Dewey & Damon, PC, Grand Rapids, MI, Paul R. Koepff, Mudge, Rose, Guthrie, Alexander & Ferdon, New York City, for Ins. Co. of North America.

Reynolds A. Brander, Jr., Cholette, Perkins & Buchanan, Grand Rapids, MI, for North River Ins. Co.

OPINION

HILLMAN, Senior District Judge.

On August 27, 1991, this court found CPC International, Inc., ("CPC") directly liable under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), § 107(a)(2), as amended, 42 U.S.C. § 9607(a)(2), for response and remediation costs of cleaning up groundwater contamination surrounding the Ott/Story/Cordova site in Muskegon County, Michigan.¹ In the third-party action presently before the court, CPC seeks coverage and indemnification for these response and remediation costs under nineteen separate comprehensive general liability ("CGL") policies in effect from 1971-1977. CPC bought these policies from the fourteen third-party defendant insurance carriers (collectively, the "insurers").² Presently before the court are all insurers' motions for summary judgment and CPC's motion for partial summary judgment on the issues of choice of law and duty to defend.

The principal point of contention between opposing parties is the timing of the "occurrences" that caused the groundwater contamination resulting in the environmental damage for which CPC seeks coverage. All third-party defendant insurers argue in their motions for summary judgment that these occurrences took place long before 1971-77, when they insured CPC. Insurers claim that the groundwater in the area of the site was contaminated in the 1960's by the routine, intentional, and often careless waste disposal practices of both CPC's subsidiary Ott Chemical Company ("Ott II") and the former owner of the site ("Ott I"). CPC argues that subsequent owner Story Chemical Company's actions in turning off the on-site purge well system in 1974 was the occurrence that permitted the spread of groundwater contamination which polluted residential wells near the site in 1974 and the Little Bear Creek and its unnamed tributary by 1976.

All insurers claim that they are entitled to summary judgment on the independent grounds of either the "known-risk" or "loss-in-progress" doctrines. All insurers claim that they are entitled to summary judgment because either the pollution exclusion clauses or the contractual definitions of "occurrence" bar coverage under their policies. Three insurers also offer proofs that coverage is barred because of CPC's late notice to them of a possible claim. In addition, Commercial Union Insurance Company claims that "covenant-not-to-sue" language contained in a "Hold Harmless Agreement" it had with CPC also bars coverage.

CPC opposes the insurers' motions and requests that this court order Commercial Union Insurance Company ("CU") to assume its contractual obligations to defend CPC in its underlying litigation with the United States Environmental Protection Agency ("USEPA"). CPC also requests that this court order CU to reimburse all CPC's costs in defending against the USEPA's claim. CPC claims that the record does not sufficiently establish parent company CPC's imputed knowledge of the waste disposal practices of its wholly-owned subsidiary Ott Chemical Company for CPC to be denied coverage under its insurance policies. CU denies that it had any duty to defend CPC in the underlying claim. CPC further asks for an order of this court determining that New Jersey substantive law applies in interpreting all insurance contracts at issue in this case.

The parties have submitted voluminous Fed.R.Civ.P. 56(c) materials to the court to support their claims, including copies of relevant portions of trial transcripts, exhibits, and depositions. I have carefully reviewed all these materials, as well as my findings of fact and conclusions of law in the underlying case. In the discussion that follows, I first analyze the conflicts-of-law problem to determine what state law must apply in interpreting the insurers' contracts. I then dispose of the insurers' motions for summary judgment on the grounds of the "known-risk" and "loss-in-progress" doctrines. In the alternative, I conclude that three insurers are entitled to summary judgment on the grounds of CPC's late notice to them of a possible claim. I therefore do not reach the other grounds upon which the insurers claim that they are entitled to summary judgment. I further conclude that CU had no duty to defend CPC in the underlying litigation. For the benefit of this record, I reiterate below the findings of fact relevant to this discussion that I made after a 15-day trial in the CERCLA liability phase of this case.

I. Factual Background

The history of the contaminated site is as follows. From 1957-65, the site was owned and operated by Ott Chemical Company, a Michigan corporation ("Ott I"). On September 29, 1965, Ott I was purchased by a wholly-owned subsidiary of CPC, which continued operations at the site after October 1, 1965, under the same name, that of the Ott Chemical Company ("Ott II"). From 1965-72, the contaminated site was owned and operated by Ott II, CPC's wholly-owned subsidiary. From 1972-1977, the site was owned and operated by Story Chemical Company ("Story"). Since 1977, it has been owned by the Cordova Chemical Company.³

In the underlying case, this court found CPC liable as an "operator" while the site was technically owned by CPC's subsidiary Ott II, from 1965-72. In that action, I held CPC directly liable under CERCLA section 107(a) because parent corporation CPC actively participated in and exerted significant control over its wholly-owned subsidiary Ott II's business and decision-making, including specific policy matters such as hazardous waste disposal. In this regard, I found particularly probative the fact that CPC officials actively participated in and controlled Ott II's environmental matters, particularly through CPC's environmental director G.R.D. Williams. CPC's Williams helped formulate Ott II's policies, participated in regulatory meetings, and issued directives regarding Ott II's responses to regulatory inquiries. CPC Int'l, 777 F.Supp. at 574-75. Moreover, CPC's Williams specifically instructed Ott II officials to limit cooperation with state and federal regulators regarding waste disposal and to consult with CPC before responding to regulatory questionnaires or other inquiries. CPC Int'l, 777 F.Supp. at 561.

I based my finding that CPC was directly liable under CERCLA § 107(a) for response and remediation costs for the contaminated site on the following findings of fact concerning the releases of hazardous substances at the site. The principal source of contamination at the site was using engineered, unlined lagoons at the northwestern edge of the site for chemical waste disposal. CPC Int'l, 777 F.Supp. at 556. From 1959 to at least 1968, during both Ott I's and Ott II's periods of ownership, wastewaters and other chemical waste used in the manufacturing process were discharged into these lagoons, from which much...