Drexel Chemical Co. v. Bituminous Ins. Co.

• Decision Date: 11 June 1996
• Citation: 933 S.W.2d 471
• Parties: DREXEL CHEMICAL COMPANY, Plaintiff/Appellant, v. BITUMINOUS INSURANCE COMPANY, Defendant/Appellee.
• Court: Tennessee Court of Appeals

Page 471

933 S.W.2d 471

DREXEL CHEMICAL COMPANY, Plaintiff/Appellant, v. BITUMINOUS INSURANCE COMPANY, Defendant/Appellee.

Court of Appeals of Tennessee,

Western Section,

at Jackson.

June 11, 1996.

Application for permission to appeal

Denied by Supreme Court

Oct. 28, 1996.

Michael F. Rafferty, Memphis, for plaintiff/appellant.

Robert D. Flynn, Louise P. Gaerig, Memphis, for defendant/appellee.

HIGHERS, Judge.

In this case, plaintiff, Drexel Chemical Co., seeks a declaratory judgment that its insurer, Bituminous Insurance Co., is obligated to defend and indemnify Drexel in a suit currently pending in a Tennessee federal district court. Both Drexel and Bituminous filed motions for summary judgment. The trial court overruled Drexel's motion, but granted Bituminous' motion, holding that a policy exclusion relieved Bituminous of its duty to defend and to provide coverage to Drexel. Drexel has appealed the trial court's judgment, arguing that the underlying claims against it are not excluded by the policy provisions. For the reasons stated hereafter, we affirm.

I. FACTUAL AND PROCEDURAL BACKGROUND

Drexel is a company engaged in the business of manufacturing chemicals. In 1972, Drexel contracted with Arlington Blending and Packaging Co. (ABPC) for the formulation and packaging of Drexel's chemicals. The formulation process performed by ABPC involved the mixing, relabeling, and packaging of chemicals that were shipped to its site by various chemical companies in order to prepare the chemicals for resale to the consumer. Between 1972 and 1976, Drexel sent its chemicals to ABPC for formulation. In 1974, Drexel purchased a comprehensive general liability and property insurance policy from Bituminous, which covered the period from September 1974, through October 1975.

After conducting an investigation of the ABPC site, the EPA found that hazardous substances that were released incident to the ABPC formulation process had contaminated the soil and the water. The EPA subsequently instituted clean-up procedures. In 1986, the United States filed suit under CERCLA in the federal district court for the Western District of Tennessee against William Bell, who was the president of ABPC, Richard Meeks, vice-president, and three chemical companies that had contracted with ABPC for formulation of their chemicals. The United States alleged that all defendants were jointly and severally liable for response costs incurred by the United States in the investigation, administration, and enforcement of CERCLA.

In January 1990, two of the original defendant chemical companies, Velsicol Chemical Co. and Terminex International, Inc., filed a third-party complaint against Drexel and several other companies that had contracted with ABPC, seeking contribution in the event that a judgment was rendered against them.

Drexel notified Bituminous of the institution of this suit and requested that Bituminous defend and indemnify it. Bituminous denied liability, and Drexel brought this declaratory judgment action in the Circuit Court of Shelby County. Relying on the following policy exclusion, Bituminous responded that it had no duty either to defend or to indemnify Drexel:

This insurance does not apply:

* * * * * *

(f) 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 and accidental;

Both Drexel and Bituminous filed motions for summary judgment. The trial court overruled Drexel's motion and granted Bituminous' motion, holding that the pollution exclusion clause relieved Bituminous of its obligation to defend or indemnify Drexel. The trial court further found that the matter did not fall within the "sudden and accidental" exception to the exclusionary clause because the release of hazardous substances alleged in the complaint against Drexel was not sudden and accidental.

On appeal, Drexel contends that the trial court erred in granting summary judgment in favor of Bituminous because the release of hazardous substances that was alleged in the present case was "sudden and accidental" within the meaning of the pollution exclusion provision.

II POLICY LANGUAGE AT ISSUE

The terms of the insurance policy provide, as pertinent to the issues before us:

The Company will pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of bodily injury of property damage to which this insurance applies, caused by an occurrence, and the Company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent ...

* * * * * *

This insurance does not apply:

* * * * * *

(f) 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 and accidental;

III. POSITIONS OF THE PARTIES

The issue before us is whether the pollution exclusion clause precludes coverage for liability arising from the discharge of chemicals at the ABPC site. Our resolution of this issue turns on the meaning of the phrase "sudden and accidental" as it is used in the pollution exclusion clause. Drexel has presented three alternative arguments on appeal, which are: (1) The pollution exclusion claim in Bituminous' CGL policy does not apply in the present case because the undisputed facts show that the alleged leaks and spills of Drexel's chemicals at the ABPC site were "sudden and accidental"; (2) This court should follow those courts that have held that the words "sudden and accidental" in the pollution exclusion clause are ambiguous and that the exclusion should be construed strongly against the insurer and in favor of coverage for the insured; and (3) If the court holds that the pollution exclusion is not ambiguous, then there exist genuine issues of material fact that preclude the entry of summary judgment against Drexel.

Conversely, Bituminous argues that the trial court correctly held that no coverage was provided due to the pollution exclusion clause. It is Bituminous' position that the alleged pollution was not "sudden" because it occurred gradually over a period of time, nor was it "accidental," because individuals at ABPC intentionally discharged the chemicals into the environment.

IV. ANALYSIS

A. Pollution Exclusion Clause

In 1966, the standard form for comprehensive general liability (GCL) insurance policies was revised from an "accident"-based policy to an "occurrence"-based policy. Sharon M. Murphy, Note, The 'Sudden and Accidental' Exception to the Pollution Exclusion Clause in Comprehensive General Liability Insurance Policies: The Gordian Knot of Environmental Liability, 45 VAND.L.REV. 161, 165 (1992); E. Joshua Rosenkranz, Note, The Pollution Exclusion Clause Through the Looking Glass, 74 GEO.L.J. 1237, 1247 (1986). In the revised policy, "occurrence" was defined as "an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured." Robert M. Tyler, Jr., Todd J. Wilcox, Pollution Exclusion Clauses: Problems in Interpretation and Application Under the Comprehensive General Liability Policy, 17 IDAHO L.REV. 497, 499 (1981). Numerous authorities concluded that the result of the revised language defining "occurrence" was that the policies would afford liability coverage for pollution that occurred gradually over a period of time, as long as the pollution was unexpected or unintended. See, e.g., Ronsenkranz, supra, at 1247; Grand River Lime Co. v. Ohio Casualty Ins. Co., 32 Ohio App.2d 178, 289 N.E.2d 360, 365 (1972); Queen City Farms, Inc. v. Central Nat'l Ins. Co. of Omaha, 126 Wash.2d 50, 882 P.2d 703, 717 (1994).

Due to inconsistent judicial interpretations of the term "occurrence," the "qualified pollution exclusion" clause was added to the GCL policies in 1973. Wilcox, supra, at 499-50. The pollution exclusion clause that was used between 1973 and 1985, provided:

This insurance does not apply ... (f) 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 gasses, 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 and accidental.

Nancer Ballard & Peter M. Manus, Clearing Muddy Waters; Anatomy of the Comprehensive General Liability Pollution Exclusion, 75 CORNELL L.REV. 610, 613 (1990).

An enormous amount of litigation and commentary was spawned by the inclusion of the above clause into GCL policies. Pepper's Steel & Alloys, Inc. v. United States Fidelity and Guaranty Co., 668 F.Supp. 1541, 1549 (S.D.Fla.1987) ("The cases swim the reporters like fish in a lake.") The gravamen of this debate concerns the proper interpretation of the phrase "sudden and accidental." Courts have debated with particular fervor the meaning of the word "sudden." Transamerica Ins. Co. v. Duro Bag Manuf. Co., 50 F.3d 370, 372 (6th Cir.1995).

From this extensive judicial controversy have emerged three positions. The first, and what appears to be the majority position, is that "sudden" implies a...