Dutton-Lainson Co. v. Continental Ins. Co.
| Decision Date | 23 June 2006 |
| Docket Number | No. S-04-1223.,S-04-1223. |
| Citation | 271 Neb. 810,716 N.W.2d 87 |
| Parties | DUTTON-LAINSON COMPANY, a Nebraska corporation, appellant and cross-appellee, v. The CONTINENTAL INSURANCE COMPANY, a corporation, and United States Fidelity and Guaranty Company, a corporation, appellees, and Northern Insurance Company of New York, a corporation, and Empire Fire and Marine Insurance Company, a Nebraska corporation, appellees and cross-appellants. |
| Court | Nebraska Supreme Court |
James W.R. Brown, Thomas R. Brown, and Steven J. Olson, of Brown & Brown, P.C., L.L.O., for appellant.
Thomas J. Culhane and John B. Morrow, of Erickson & Sederstrom, P.C., and Peter B. Kupelian, of Kupelian, Ormond & Magy, P.C., for appellees Northern Insurance Company of New York and Empire Fire and Marine Insurance Company.
Robert S. Keith and Kellie R. Harry, of Engles, Ketcham, Olson & Keith, P.C., and Eileen King Bower and Julie L. Burgener, of Ross, Dixon & Bell, L.L.P., for appellee The Continental Insurance Company.
Stephen L. Ahl, of Wolfe, Snowden, Hurd, Luers & Ahl, and Frank Winston and John R. Casciano, of Steptoe & Johnson, L.L.P., for appellee United States Fidelity and Guaranty Company.
Randall L. Goyette, of Baylor, Evnen, Curtiss, Grimit & Witt, and, of Counsel, Laura A. Foggan, John C. Yang, and Mariela Olivares, of Wiley, Rein & Fielding, L.L.P., for amicus curiae Complex Insurance Claims Litigation Association.
The plaintiff, Dutton-Lainson Company (Dutton), incurred costs and expenses relating to the cleanup of environmental damage as demanded by the U.S. Environmental Protection Agency (EPA). In this action, Dutton is suing several of its liability insurers for indemnification of those costs and expenses. Summary judgment was granted in favor of the insurers, and Dutton appeals.
Dutton is a Nebraska corporation with its principal place of business in Hastings, Nebraska. Since at least 1948, Dutton conducted a manufacturing business. In the course of its manufacturing operations, Dutton used various solvents to clean its machines and parts. From approximately 1948 to 1971, the cleaning solvents contained trichloroethylene (TCE). From approximately 1971 to 1985, the solvents contained "1,1,1, trichloroethane" (TCA).
From February 1962 to October 1964, Dutton placed the solvents and some sludge-filled degreaser fluid in sealed metal drums and deposited the solvents and drums in the North Landfill in Hastings, which was operated by the city of Hastings. From October 1964 to July 1982, Dutton placed sludge from the degreaser and, prior to September 7, 1977, some of the sludge-filled solvent fluid in sealed metal containers and deposited them in the South Landfill in Hastings, which was also operated by the city of Hastings.
At some point after the drums and containers were deposited in the North and South Landfills, either the solvent and sludge in the drums and containers were emptied into the landfills or the operator of the landfills bulldozed the materials and crushed the containers, causing the sludge and solvent "to be removed from" the containers. This was done either directly by Dutton employees or by the landfill operators with full knowledge of Dutton. Commencing prior to 1970 and continuing past 1987, the TCE and TCA deposited by Dutton in the North and South Landfills seeped into the soil and ground water at both subsites.
In addition to the North and South Landfills contaminations, from 1948 to 1987, Dutton's regular manufacturing operations caused solvents containing TCE and TCA to spill onto the concrete floor of its operating premises. The TCE and TCA seeped from the concrete floor into the ground water beneath and continued to spread to the ground water under adjacent property. The pollution emanating from such seepage is designated as "Well No.3." Dutton presented evidence that until it received a letter from the EPA in 1992, it was unaware that the solvent was migrating through the concrete floor and invading the soil and ground water.
The evidence is undisputed that 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 that Dutton did not anticipate that the solvents would cause pollution of the soil or ground water.
Throughout its manufacturing operations, Dutton carried several insurance policies with multiple insurers. United States Fidelity and Guaranty Company (USF & G) issued the following policies to Dutton: policy No. MP8393 (effective November 15, 1973, to November 15, 1976), policy No. MP9379 (effective January 1, 1977, to January 1, 1980), and policy No. MP20284 (effective January 1, 1980, to January 1, 1983). Empire Fire and Marine Insurance Company (Empire) issued a commercial umbrella policy, No. 280381, to Dutton for the policy period January 1, 1978, to January 1, 1979. Both the USF & G policies and Empire's policy contained pollution exclusion clauses which provided that the insurance did 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 watercourse or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.
(Such pollution exclusion clauses are hereinafter referred to as the "qualified pollution exclusion.")
Continental Insurance Company (Continental) issued three primary general liability policies to Dutton as follows: 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 Insurance Company of New York (Northern) issued a commercial general liability policy, No. SM37686395, for the period October 1, 1983, to October 1, 1986. However, this policy was canceled by Dutton effective October 1, 1984.
The Continental policies contained an addendum stating: "It is hereby agreed and understood that the Comprehensive General Liability Insurance . . . is amended to include Bodily Injury or Property Damage caused by the dumping, discharge, or escape (sudden or non-sudden), of irritants, pollutants, or contaminants." Northern's policy's standard form contained a pollution exclusion clause identical to the one found in the USF & G and Empire policies; however, pursuant to negotiations between Dutton and Northern, the pollution exclusion clause was deleted from the policy.
On September 23, 1985, the EPA 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 of the contamination that had emanated from those subsites. On November 5, 1992, the EPA notified Dutton that it was a PRP for the cost of cleaning up the contamination at the Well No. 3 subsite and of the contamination that had emanated from that subsite. On December 28, 2001, Dutton was notified by the EPA that it was a PRP for "Operable Unit 19," which was an area-wide ground water contamination subsite allegedly contaminated in part by the leaching of the North and South Landfills and Well No. 3, which leaching had not been addressed by the other subsite response actions.
The PRP notices from the EPA generally gave Dutton a specified period of time to voluntarily undertake cleanup of the relevant subsites, or else the EPA would design and implement its own plan and would collect reimbursement from Dutton in the event it were ultimately determined to be a PRP. Beginning August 14, 1998 consent decrees were entered between Dutton and the EPA regarding cleanup of the various subsites. Pursuant to these decrees, Dutton has conducted extensive cleanup, with such efforts still continuing.
In November 1985, Dutton notified Continental, Northern, USF & G, and Empire of the EPA's designation of Dutton as a PRP for the North and South Landfills. Dutton updated its notice to Continental in 1991 and to USF & G in 1992.
Continental first responded to Dutton's notice in February 1987 with a strict reservation of rights, In February 1992, Continental sent a letter to Dutton stating that "[u]pon review of both the documentation provided with your submission of this claim and the above referenced policies, Continental must respectfully deny coverage for this claim . . . ." The letter then set forth several reasons for such denial. As Continental admitted during oral argument to this court, "the denial was clear."
Northern, through its parent company, Maryland Casualty Company, responded to Dutton's notice in April 1986. Therein, Northern stated that it did not believe that any "suit" within the meaning of the policy had yet been brought. Therefore, "any determination as to coverage would appear to be premature." Yet, Northern went on to state that coverage sought by a future suit might be inconsistent with the definitions of "occurrence" and "property damage," as well as other provisions. In closing, Northern stated that it "would appreciate. . . being kept apprised of the progress of EPA's investigation, and would welcome any future information that you believe relevant." At oral argument, Northern's attorney admitted that the 1986 letter "could be fairly read as being a refusal."
Empire responded to Dutton's notice in 1992. Characterized as an "interim...
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