Emhart Industries, Inc. v. Century Indem. Co.
| Decision Date | 13 March 2009 |
| Docket Number | No. 07-2821.,No. 07-2806.,07-2806.,07-2821. |
| Citation | 559 F.3d 57 |
| Parties | EMHART INDUSTRIES, INC., Plaintiff-Appellee, Cross-Appellant, v. CENTURY INDEMNITY COMPANY, as an indirect successor to Insurance Company of North America, Defendant-Appellant, Cross-Appellee, Home Insurance Company; North River Insurance Co.; OneBeacon America Insurance Company; US Fire Insurance Co., Defendants, Cross-Appellees, Liberty Mutual Insurance Company, Defendant. |
| Court | U.S. Court of Appeals — First Circuit |
Before TORRUELLA, BOUDIN, and HOWARD, Circuit Judges.
This insurance coverage dispute arises from efforts by the Environmental Protection Agency ("EPA") to remediate contamination at the Centredale Manor Superfund site (the "Site") in North Providence, Rhode Island.
In 2000, the EPA designated Plaintiff-Appellee/Cross Appellant Emhart Industries, Inc. ("Emhart") a Potentially Responsible Party ("PRP") for the cleanup costs of the Site under the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. § 9601 et seq. Consequently, Emhart made a demand for coverage on its insurers, which include Defendant-Appellant/Cross-Appellee Century Indemnity Company ("Century"), and Defendants/Cross-Appellees The North River Insurance Company ("North River") and OneBeacon America Insurance Company ("OneBeacon"). Emhart later sued Century, OneBeacon, and North River, among others, to cover its cleanup and defense costs.
After trial, a jury found that Century, OneBeacon, and North River did not owe Emhart coverage for cleanup costs. However, the district court awarded summary judgment for Emhart on its claim that Century owed it a duty to defend in the EPA matter. The district court later found that Century breached that duty and assessed the total costs of defense of the underlying EPA action as damages, but only up to the date of the jury's finding that Century did not owe a duty to indemnify.
Century appeals the allowance of summary judgment in Emhart's favor as to Century's duty to defend. In the alternative, Century contends that it should not be saddled with the entirety of the defense costs incurred up to the jury finding. Emhart cross-appeals, contending that the duty to defend continues, that it is entitled to total indemnity costs for Century's breach of the duty to defend, and that the district court committed various errors with respect to the jury verdict.
After careful consideration, we affirm the district court with respect to all issues on appeal.
The following derives from the extensive record, which includes the parties' stipulations, trial testimony, and other evidence submitted at trial and at a post-trial evidentiary hearing.
The Site totals a little over nine acres. It is bordered on the west by the Woonasquatucket River and on the east by a drainage swale that empties into a wooded wetland to the south. The Site is a flood plain for the river.
From 1944 to 1968, Atlantic Chemical Company, which later became Metro-Atlantic, Inc. ("Metro-Atlantic"), leased a portion of the Site, where it operated a chemical plant. Beginning in 1964, and for a period of less than one year, Metro-Atlantic manufactured hexachlorophene, a substance used in pHisoHex disinfecting soap. Dioxin is a byproduct of the hexachlorophene manufacturing process. Even at very low levels, dioxin poses significant risks to human and ecological health.
During this time, from 1952 to 1969, an unrelated company, New England Container Corporation ("NECC"), operated a steel drum reconditioning facility on a portion of the Site. NECC refurbished drums from at least two companies that manufactured and sold 2,4,5-trichlorophenol, which yields dioxin when combusted. Refurbishing of the drums requires the dumping of the chemical residue inside the drums and then incinerating the insides. Other fires and incineration at the NECC facility may have contributed to the dioxin contamination. Flooding also may have dispersed dioxin onto the Site from other areas.
In 1968, Metro-Atlantic merged with Crown Chemical Corporation to form Crown-Metro, Inc. ("Crown-Metro"), and thereafter ceased operations at the Site as of the merger date. Through a series of mergers and acquisitions, Emhart became the corporate successor to Metro-Atlantic and Crown-Metro.
The EPA first discovered dioxin on the Site in 1998. On June 21, 1999, the EPA issued a Request for Information to Emhart concerning the Site pursuant to § 104(e) of CERCLA, 42 U.S.C. § 9604(e), and pursuant to the Resource Conservation and Recovery Act ("RCRA"), 42 U.S.C. § 6927.
On February 28, 2000, after preliminary studies and investigations, the EPA sent Emhart a Notice of Potential Liability under CERCLA for the Site (the "PRP Letter"), identifying Emhart as a PRP. Among other things, the PRP Letter required Emhart to pay costs of $947,140.89 incurred to date, as well as future costs, and mandated such actions as constructing a soil cap, implementing flood control measures, and removing contaminated soil and river sediments. The PRP Letter also identified five other PRPs, including NECC, but Emhart remains the only PRP that is financially viable. Liability under CERCLA is strict as well as joint and several.
On April 12, 2000, the EPA issued to Emhart and others a Unilateral Administrative Order for Removal Action (the "UAO") requiring that certain remedial work be performed on the Site. The EPA has also issued a second and third Unilateral Administrative Order for Removal Action (the "second UAO" and "third UAO," respectively). The anticipated cost of remediation is likely to exceed $100 million.
From the beginning of the EPA action, Emhart and Century scuffled over coverage. Some of this scuffling is relevant to this appeal.
On July 21, 1999, shortly after issuance of the Request for Information, Emhart's broker sent a letter giving notice of the Request for Information to Century and other "Interested Underwriters," seventeen in all. The letter demanded that each recipient provide "defense and indemnification" and advised the insurers that Emhart had already secured outside counsel, Swidler Berlin, to provide a "prompt and proper" defense. The letter identified four excess policies issued by Century, but did not list the Century policies at issue in this case. The broker also forwarded, along with the Request for Information, a memorandum detailing the various mergers and transactions that resulted in Emhart's succession to the rights of Crown-Metro under the policies. As with the Request for Information, on March 14, 2000, Emhart forwarded copies of the PRP Letter to the same group of insurers. On April 21, 2000, Emhart sent copies of the UAO to the same group. Emhart has also engaged in individual communications with one of its insurers, Liberty Mutual. Liberty Mutual would later settle with Emhart for $250,000.
On November 22, 2000, after issuance of the UAO, Emhart's attorney wrote Century seeking information, for the first time, regarding policies issued to Crown-Metro. The letter attached a 1969 excess policy which Emhart had recently located, and requested that Century conduct a review of its records for any other policies it may have issued to Crown-Metro. The 1969 policy attached to that letter is the Century excess policy ("the Century Excess Policy") at issue in this case.
Initially, by letter dated December 12, 2000, Century refused to perform a broad search and denied coverage on the Century Excess Policy, stating that, because Crown-Metro had merged into Emhart after the expiration of the Century Excess Policy, Emhart was not entitled to coverage. On January 3, 2001, Emhart responded by reiterating its request for a broad search. Emhart also reiterated facts (facts previously provided in the memorandum accompanying its mass notices) that it was a corporate successor to Crown-Metro, and asked Century to reconsider its position on corporate succession.
On January 11, 2001, Century informed Emhart that it reversed its position, and stated that Emhart may have succeeded to Crown-Metro's insurance policies. However, Century insisted that Emhart had to provide proof of exhaustion of the underlying policy (which neither party had located yet) in order to obtain the benefits of the Century Excess Policy.
Emhart subsequently filed this lawsuit on January 25, 2002. On August 29, 2002, Century commenced a new search for possible policies, prior to any discovery requests made by Emhart. During this second search, in October 2002, Emhart served document requests and interrogatories relating to, among other things, any Century policies insuring Crown-Metro.
The second search finally identified the Century primary policy ("the Century Primary Policy") sometime around January 2003, but it was not disclosed to Emhart until July 10, 2003. Consequently, on January 27, 2004, Century moved to amend its answer to add a counterclaim seeking a declaration that it had no duty to defend or indemnify under the Century Primary Policy. Century then denied coverage two days later, on January 29, 2004. Emhart's counterclaim-in-reply sought a declaration that Century owed duties to defend and indemnify under the Century Primary Policy.
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