Energynorth Natural Gas v. Century Indem.

• Decision Date: 28 June 2006
• Docket Number: No. 05-2149.,05-2149.
• Citation: 452 F.3d 44
• Parties: ENERGYNORTH NATURAL GAS, INC., Successor in Interest to Gas Services, Inc., Plaintiff, Appellee, v. CENTURY INDEMNITY COMPANY, Successor in Interest to Cigna Specialty Insurance Co., CCI Insurance Company, Insurance Company of North America, and Indemnity Insurance Company of North America, Defendant, Appellant; American Home Insurance Company; America Re-Insurance Company; Associated Electric and Gas Services Limited; International Insurance Company, Successor in Interest to International Surplus Lines Insurance Company; Lexington Insurance Company; North Star Reinsurance Corporation; Northwestern National Insurance Company of Milwaukee, Wisconsin, Successor in Interest to Bellefonte Insurance Company and Bellefonte Underwriters Insurance Company; The Northern Assurance Company of America; St. Paul Fire and Marine Insurance Company; Utica Mutual Insurance Company; Lloyds Underwriters at London; and National Union Fire Insurance of Pittsburgh, Defendants.
• Court: U.S. Court of Appeals — First Circuit

452 F.3d 44

ENERGYNORTH NATURAL GAS, INC., Successor in Interest to Gas Services, Inc., Plaintiff, Appellee, v. CENTURY INDEMNITY COMPANY, Successor in Interest to Cigna Specialty Insurance Co., CCI Insurance Company, Insurance Company of North America, and Indemnity Insurance Company of North America, Defendant, Appellant American Home Insurance Company; America Re-Insurance Company; Associated Electric and Gas Services Limited; International Insurance Company, Successor in Interest to International Surplus Lines Insurance Company; Lexington Insurance Company; North Star Reinsurance Corporation; Northwestern National Insurance Company of Milwaukee, Wisconsin, Successor in Interest to Bellefonte Insurance Company and Bellefonte Underwriters Insurance Company; The Northern Assurance Company of America; St. Paul Fire and Marine Insurance Company; Utica Mutual Insurance Company; Lloyds Underwriters at London; and National Union Fire Insurance of Pittsburgh, Defendants.

No. 05-2149.

United States Court of Appeals, First Circuit.

Heard January 13, 2006.

Decided June 28, 2006.

COPYRIGHT MATERIAL OMITTED

John L. Altieri, Jr., with whom Robert M. Swederlow and O'Melveny & Myers LLP were on brief, for the appellant.

Bruce W. Felmly, with whom Michael J. Quinn and McLane, Graf, Raulerson & Middleton, P.A. were on brief, for the appellee.

Before SELYA, LIPEZ, and HOWARD, Circuit Judges.

LIPEZ, Circuit Judge.

EnergyNorth Natural Gas, Inc. claimed that certain Century Indemnity Company excess liability insurance policies covered EnergyNorth's potential liability for environmental contamination at the site of former utility operations in Dover, New Hampshire. After a jury trial, but before the jury was charged, the district court entered judgment as a matter of law for EnergyNorth. Century appeals, claiming that the district court erred in refusing to allow the case to go to the jury, in excluding some evidence, and in ordering Century to reimburse EnergyNorth for certain costs and fees. We affirm.

I.

We describe some background facts, the posture of the case, and some of the evidence presented at trial, leaving other details for discussion in connection with Century's allegations of error. Because the district court granted judgment as a matter of law, we review the facts in the light most favorable to Century. Isom v. Town of Warren, 360 F.3d 7, 9 (1st Cir.2004).

A. Factual Background

Before natural gas became widely available, utilities produced gas fuel for heating, lighting and cooking at facilities called manufactured gas plants (known in the industry as "MGPs"). New Hampshire's MGPs came into service in the 1800s. They became outmoded and were abandoned when natural gas pipelines reached the state in the 1950s. Generally, MGPs created gas by heating coal in a large oven. As the coal reached high temperatures, gas evaporated and was drawn into holding tanks, processed, purified (cleansed of tar and other contaminants), and piped out for use.

Along with gas, the MGP process produced a variety of solid and liquid byproducts, including ash, clinker, coal slag, cyanides, drip oils, and tar. Some of these byproducts are long-lasting and now contaminate the ground and water around the sites once occupied by MGPs, either because they were discharged as unwanted waste or because they seeped accidentally from the plants. Several components of MGP waste, including tar, are considered carcinogenic, and MGP sites have become significant environmental and public health concerns.¹

An MGP operated near the tidal Cocheco River in Dover, New Hampshire from 1850 until 1956. This MGP had several owners and operators. EnergyNorth, a company of relatively recent vintage, is the successor in interest to Gas Services, Inc., which operated the Dover MGP from 1945 to 1955. The MGP was largely destroyed in 1957, but Gas Services retained some responsibility for its former site. By 1999, when the Department of Environmental Services began the proceedings that led to this litigation, it had become clear that the Dover MGP had contaminated the ground and water underneath and around the site, and the waters and bed of the Cocheco River.

At issue here is the contamination caused by tar at the Dover MGP site. A heavier-than-water liquid with approximately the consistency of vegetable oil, tar was the chief liquid byproduct of MGP gas production. It condensed and was extracted from MGP gas as it cooled. MPG producers separated tar from gas in order to make the gas suitable for consumer use. Normally, tar was either re-burned for fuel or sold as an industrial product. At nearly all MGP sites, however, at least some tar escaped confinement or was dumped into the environment. Once tar enters the environment, it tends to migrate, or flow, and to contaminate soils well beyond the original sites of MGPs. Officials found tar in the ground around the Dover MGP site, and in the bed of the Cocheco River, downhill from the site.

There is no dispute that there were additional causes of contamination at the Dover MGP site. EnergyNorth admitted, for instance, that its predecessor, Gas Services, buried ash, clinker, and purifier wastes on the MGP site. Ash and clinker were solid materials left over after the coal was heated to produce gas. Purifier wastes were highly-contaminated wood chips, used as part of a filtration process that removed cyanide and other compounds from the gas before it was piped out for use. EnergyNorth did not seek coverage from Century related to its costs for cleaning up the remnants of these disposals. EnergyNorth also admitted that Gas Services had dumped drip oils into the Cocheco River. Drip oils were lighter-than-water liquids that condensed in gas distribution pipes after the tar in the gas had been eliminated.

B. Procedural Background

In the late 1990s, the New Hampshire Department of Environmental Services began investigating environmental contamination at the sites of former MGPs around the state. Invoking a New Hampshire statute that — the parties agree — imposed strict liability on the Dover MGP's former owners, the department sent "a letter of notification" to EnergyNorth, informing the company that the state had determined that EnergyNorth, along with other utility companies, was strictly liable for the contamination of the Cocheco River and nearby waters and soils. EnergyNorth complied with the state's order that it help study and address the contamination.

Shortly after receiving the letter of notification from the state, EnergyNorth commenced this case by suing fifteen out-of-state insurers in the federal district court, contending that it was entitled to invoke a variety of insurance policies to cover its costs in cleaning up the Cocheco. EnergyNorth also sued a sixteenth insurer in New Hampshire state court. The district court and New Hampshire state courts soon became familiar with MGP issues by handling this complex case and a variety of similar efforts relating to other MGP sites around the state. After the district court entered partial summary judgment on several issues, none of which are contested here, EnergyNorth resolved its claims against fourteen of the insurers through settlement.² EnergyNorth's claim against Century proceeded to trial.

Century had issued insurance policies to Gas Services providing excess liability coverage for two periods after the Dover MGP was shut down: 1960-63 and 1971-75. Even though the MGP no longer was operating during these periods, Gas Services still faced potential liability for the former MGP. In filing for a declaratory judgment, EnergyNorth sought a ruling that it could invoke the Century policies in the event that its liability exceeded the amount payable under its general liability policies for the policy periods.

Century's policies promised to reimburse Gas Services for excess liability related to "damages" from "accidents" that occurred during the policy periods.³ Seeking to demonstrate that the environmental cleanup efforts undertaken were neither "damages" nor related to an "accident" that occurred during the policy periods, Century raised three main defenses: (1) its policies exempted conduct that was "inherently injurious" from the definition of "accident," and Gas Services had waived its right to coverage by intentionally discharging tar into the environment; (2) any accidental discharge actually responsible for the contamination at issue did not occur during the policy periods; and (3) any potential costs were due, at least in part, to preventative efforts, which could not be considered "damages" under the policies. EnergyNorth countered that (1) its predecessor Gas Services never disposed of tar intentionally; (2) environmental contamination "accidents," as defined by New Hampshire law, which occurred during Century's policy periods, contributed to the current contamination; (3) under New Hampshire law, the cleanup efforts at the Dover MGP fit the policies' coverage for "damages."

When the holder of a liability insurance contract seeks a declaratory judgment under New Hampshire law that "an existing insurance contract covers the particular incident in question," Hodge v. Allstate Ins. Co., 130 N.H. 743, 546 A.2d 1078, 1081 (1988), the insurer bears "the burden of proof concerning the coverage." N.H.Rev.Stat. Ann. § 491:22-a (providing that an insured may seek a declaratory judgment that its insurance policy covers a certain claim). Although EnergyNorth initiated this suit, it was Century's burden to show why its policies could not be invoked.⁴

C. The Trial and Judgment as a Matter of Law

At trial, EnergyNorth presented both expert and lay testimony to contradict Century's intentional discharge defense. EnergyNorth's MGP expert opined that the tar responsible for most of the contamination at issue had seeped from one area of the MGP site, downhill, into the subsoil, groundwater, and Cocheco River. EnergyNorth's lay witnesses on the...