Dutton-Lainson Co. v. Continental Ins. Co.

Decision Date05 February 2010
Docket NumberNo. S-09-164.,S-09-164.
Citation778 N.W.2d 433,279 Neb. 365
PartiesDUTTON-LAINSON COMPANY, a Nebraska corporation, appellant and cross-appellee, v. The CONTINENTAL INSURANCE COMPANY, a corporation, and Northern Insurance Company of New York, a corporation, appellees and cross-appellants.
CourtNebraska Supreme Court

James W.R. Brown, Steven J. Olson, and Thomas R. Brown, of Brown & Brown, P.C., L.L.O., Omaha, for appellant.

Peter B. Kupelian and Carol G. Schley, of Kupelian, Ormond & Magy, P.C., Southfield, MI, and Thomas J. Culhane, of Erickson & Sederstrom, P.C., Omaha, for appellee Northern Insurance Company of New York.

Robert S. Keith, of Engles, Ketcham, Olson & Keith, P.C., Omaha, and Eileen King Bower and David Cutter, of Troutman Sanders, L.L.P., Chicago, IL, for appellee The Continental Insurance Company.

HEAVICAN, C.J., WRIGHT, GERRARD, McCORMACK, and MILLER-LERMAN, JJ.

WRIGHT, J.

INTRODUCTION

In the 1940's, Dutton-Lainson Company (Dutton) began a manufacturing business in Hastings, Nebraska. Dutton used various solvents in its operations to clean machines and parts. Beginning in 1985, the Environmental Protection Agency (EPA) required Dutton to remediate environmental contamination on its premises and other sites. Dutton filed claims with its insurers, which denied coverage.

Dutton sued The Continental Insurance Company (Continental) and Northern Insurance Company of New York (Northern), seeking indemnification for expenses related to the EPA investigation and the resulting cleanup. The Douglas County District Court found that Dutton had sustained total damages of $3,801,521.70. The court applied a pro rata, time-on-the-risk allocation of damages and entered judgment for Dutton against Continental in the amount of $475,190.21 and against Northern in the amount of $74,937.89. Dutton has appealed, and Continental and Northern have cross-appealed. We affirm.

SCOPE OF REVIEW

A suit for damages arising from breach of a contract presents an action at law. Albert v. Heritage Admin. Servs., 277 Neb. 404, 763 N.W.2d 373 (2009).

The interpretation of an insurance policy is a question of law. In reviewing questions of law, an appellate court resolves the question independently of the lower court's conclusion. Rickerl v. Farmers Ins. Exch., 277 Neb. 446, 763 N.W.2d 86 (2009).

FACTS
POLLUTION AND EPA

Dutton's manufacturing business used various solvents to clean machines and parts. From approximately 1948 to 1971, the cleaning solvents contained trichloroethylene (TCE), and from approximately 1971 to 1985, the solvents contained "1,1,1, trichloroethane" (TCA).

Between February 1962 and October 1964, Dutton placed the solvents and sludge-filled degreaser fluid in sealed metal drums that were deposited in a city-operated landfill referred to as the "North Landfill." From October 1964 to July 1982, Dutton placed sludge from the degreaser and, prior to September 7, 1977, sludge-filled solvent fluid in sealed metal containers and deposited them in the city-operated "South Landfill."

After the drums and containers were deposited in the landfills, they were either emptied by Dutton employees or bulldozed by the landfill operator and crushed, causing the sludge and solvent to be released and allowing TCE and TCA to seep into the soil and ground water at both sites. Dutton's deposits in the North and South Landfills were in compliance with then-existing laws and ordinances for the disposition of these solvents, and Dutton did not anticipate that the solvents would cause pollution of the soil or ground water.

In the early 1980's, testing at a number of municipal wells in Hastings revealed the presence of TCE. The EPA began an investigation and, on September 23, 1985, notified Dutton that it was a potentially responsible party (PRP) for the cost of cleaning up the contamination at the North and South Landfills and the contamination that emanated from those sites.

In addition, between 1948 and 1987, Dutton's regular manufacturing operations caused solvents containing TCE and TCA to spill onto the concrete floor of its operating premises and seep into the ground water beneath. The contaminants spread via the ground water to adjacent property. The pollution emanating from such seepage was designated as "Well No. 3."

Until Dutton received a letter from the EPA dated November 5, 1992, Dutton was unaware that the solvent was migrating through the concrete floor and invading the soil and ground water. The letter informed Dutton that it was a PRP for the cost of cleaning up the contamination at the Well No. 3 subsite and the contamination that had emanated from that subsite.

On December 28, 2001, the EPA notified Dutton that it was a PRP for "Operable Unit 19," which was an area-wide ground water contamination subsite allegedly contaminated by leaching from the other subsites that had not been addressed by other response actions. The polluted areas were eventually designated as a single EPA "Superfund site," made up of seven distinct subsites.

The PRP notices generally gave Dutton a specified period of time to voluntarily undertake cleanup of the various subsites. The notices stated that if no cleanup action was taken, the EPA would design and implement its own plan and would collect reimbursement from Dutton if it were ultimately determined to be a PRP.

Beginning August 14, 1998, consent decrees were entered in the U.S. District Court for the District of Nebraska between Dutton and the EPA regarding cleanup of the various subsites. Pursuant to these decrees, Dutton has conducted extensive cleanup and continues to address the contamination. The cleanup is expected to continue until 2017.

INSURANCE HISTORY

Throughout its manufacturing operations, Dutton carried insurance policies with many different insurers, including United States Fidelity and Guaranty Company (USF & G), Empire Fire and Marine Insurance Company (Empire), Continental, and Northern. Continental issued three primary general liability policies: policy No. CBP415666 (apparently effective August 1, 1980, to August 1, 1983), policy No. CBP914504 (apparently effective August 1, 1981, to August 1, 1984), and policy No. CBP900212 (effective October 1, 1984, to October 1, 1987). Northern issued a general liability policy, No. SM57686390, for the period August 1 to October 1, 1983, and a second policy, No. SM37686395, for the period October 1, 1983, to October 1, 1986. This policy was canceled by Dutton effective October 1, 1984.

In November 1985, Dutton notified Continental and Northern of the EPA's designation of Dutton as a PRP for the North and South Landfills. Northern responded that it did not believe any "suit" within the meaning of the policy had yet been brought. Therefore, Northern asserted that it was premature to determine whether there was coverage and that the policy definitions of "occurrence" and "property damage," as well as other provisions, might limit coverage. Northern asked to be kept apprised of the EPA's investigation.

In February 1987, Continental sent Dutton a strict reservation of rights, asserting that there was a good likelihood that no coverage existed or that coverage was excluded by Continental's policies. Dutton updated its notice to Continental in 1991. In February 1992, Continental sent a letter to Dutton denying coverage for the claims.

On September 4, 2002, Dutton sued USF & G, Empire, Continental, and Northern, seeking indemnification for sums expended to defend against the EPA's investigation and to conduct the environmental cleanup, including future expenditures. We affirmed the summary judgment entered in favor of USF & G and Empire, whose policies contained qualified pollution exclusions. See Dutton-Lainson Co. v. Continental Ins. Co., 271 Neb. 810, 716 N.W.2d 87 (2006) (Dutton I). We concluded that Dutton could not recover from USF & G and Empire. However, there were issues of fact precluding summary judgment as to Continental and Northern. Thus, we reversed the judgment and remanded the cause for further proceedings as to the policies issued by Continental and Northern, which are the subject of this appeal.

Dutton sought judgment against Continental and Northern, jointly and severally, in the sum of $4,854,231.49 plus interest and attorney fees. After a trial, the court entered judgment in favor of Dutton and against Continental and Northern.

In allocating the damages, the trial court applied a pro rata, time-on-the-risk method. It divided Dutton's damages evenly over the 40-year period from 1948 to 1987 during which contaminants were deposited. The court found that the Continental policies were in effect for 60 months and that Continental provided coverage for all four sites. Continental's share of the time-on-the-risk was calculated by dividing 60 months by 480 months, the total number of months the contaminants were deposited. The court calculated Continental's share as 12.5 percent of the total damages, for damages of $475,190.21.

The trial court concluded that Northern was liable for only the North and South Landfills. It denied coverage for Well No. 3 and Operable Unit 19 because of the late notice provided by Dutton. It found that Northern provided coverage for 14 months and that its share of the relevant damages was 2.91666 percent. The court awarded $74,937.89 in damages against Northern.

ASSIGNMENTS OF ERROR

Dutton assigns 18 errors which, summarized and restated, allege that the trial court erred in (1) finding that Northern had not waived notice with respect to Well No. 3 and Operable Unit 19 and that Northern was prejudiced by the alleged lack of notice, (2) finding that there was only one "occurrence" as defined in the policies, (3) finding that Dutton was not entitled to recover employee costs of $1,031,836.99, (4) refusing to allow Dutton prejudgment interest, (5) not holding Continental and Northern jointly and severally liable, (6) not entering declaratory judgment that Continental and...

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