Fireman's Fund Ins. v. Valley Manufactured Prod. Co.

• Decision Date: 07 June 1991
• Docket Number: 85-4805-H.,Civ. A. No. 85-2606-H
• Citation: 765 F. Supp. 1121
• Parties: FIREMAN'S FUND INSURANCE COMPANY, et al., Plaintiffs, v. VALLEY MANUFACTURED PRODUCTS COMPANY, INC., et al., Defendants. VALLEY MANUFACTURED PRODUCTS COMPANY, INC., et al., Plaintiffs, v. AETNA CASUALTY & SURETY COMPANY, et al., Defendants.
• Court: U.S. District Court — District of Massachusetts

765 F. Supp. 1121

FIREMAN'S FUND INSURANCE COMPANY, et al., Plaintiffs, v. VALLEY MANUFACTURED PRODUCTS COMPANY, INC., et al., Defendants.

VALLEY MANUFACTURED PRODUCTS COMPANY, INC., et al., Plaintiffs, v. AETNA CASUALTY & SURETY COMPANY, et al., Defendants.

Civ. A. Nos. 85-2606-H, 85-4805-H.

United States District Court, D. Massachusetts.

June 7, 1991.

Brian T. Kenner, Martin C. Pentz, Nutter, McClennen & Fish, Michael S. Greco, Michael D. Weisman, Hill and Barlow, Boston, Mass., Stephen J. Smirti, Jr., Rivkin, Radler, Dunne & Bayh, Garden City, N.Y., John Chesny, Drinker Biddle & Reath, Philadelphia, Pa., for Fireman's Fund Insurance Co. and Lumbermens Mut. Cas. Co.

John P. Graceffa, Gallagher & Gallagher, Boston, Mass., for Aetna Cas. Sur. Co.

David B. Chaffin, Wickens, Hare, Koches & Cale, Boston, Mass., Paul R. Koepff, Mudge Rose Guthrie Alexander & Ferdon, New York City, for Insurance Co. of North America.

Deborah S. Griffin, Peabody & Arnold, Boston, Mass., for U.S. Fire Ins. Co.

John A. Wickstrom, Tashjian, Simsarian & Wickstrom, Worcester, Mass., for Mission Nat. Ins. Co.

Ogden N. Lewis, Michael J. Lonergan, Davis Polk & Wardwell, New York City, for Aetna Ins. Co.

Brian T. Kenner, Nutter, McClennen & Fish, Boston, Mass., for Valley Manufactured Products.

Michael Aylward, Morrison, Mahoney & Miller, Boston, Mass., for Groveland Resources Corp.

John P. Ryan, Sloane & Walsh, Boston, Mass., for Hartford Ins. Co.

ORDER

HARRINGTON, District Judge.

These consolidated cases are declaratory judgment actions by which the parties seek a determination as to whether certain insurance companies (the "insurers") are obligated, pursuant to their respective comprehensive general liability policies, to defend and indemnify their insured (the "policyholders") against claims arising out of the alleged contamination of groundwater situated in Groveland, Massachusetts. Also, in these consolidated cases, certain insurers who have provided excess liability insurance policies seek declaratory judgment as to whether they are obligated under these policies.

This action arises out of the discovery, in 1979, that two of the Town of Groveland's drinking water wells were contaminated with Trichlorethylene ("TCE"). In 1981, after informing the policyholders that they would be held potentially responsible and after entering into a succession of unsuccessful settlement negotiations with the policyholders, the Town sued the policyholders for injuries allegedly arising from the policyholders' contamination of the Town's groundwater and drinking wells. Subsequently, the Department of Environmental Quality Engineering (DEQE) and the Environmental Protection Agency (EPA), after investigation, took various actions with respect to the policyholders, none of which it is necessary to outline here.

Insurers and policyholders have filed motions for summary judgment on several grounds. It is unnecessary to detail each ground upon which each party seeks summary judgment in view of the Court's conclusion that the first ground, namely, late notice and resulting prejudice, is dispositive as to all the parties.

I, therefore, address the insurers' motion for summary judgment on the ground that the policyholders failed to provide timely notice of events that the policyholders now contend were occurrences or claims. The policyholders have also filed a motion for summary judgment seeking a declaration that the insurers cannot prevail on their late notice defense because, among other things, they have suffered no actual prejudice.

Valley Manufactured Products Co., Inc., Groveland Resources Corp., and Valley Screw Products Co. are the policyholders in this action. Each of these companies, at various times, owned and operated the same manufacturing plant in the Town of Groveland. The insurers insured this plant at various times.

These policyholder-companies made screw machine parts at the Groveland plant. In the 1960s and 1970s, the policyholders used Trichlorethylene ("TCE") as a metal parts cleaner and degreasing agent. For purposes of the motion for summary judgment on the ground of late notice, it is undisputed that, in 1973, the policyholders installed an underground storage tank which was filled with about 500 gallons of TCE. The next day or two the tank was empty and it was discovered that a plug on the bottom of the tank had accidentally become loose allowing the 500 gallons of TCE to leak into the ground. This tank leak allegedly contaminated underground water located beneath the policyholder's property which, in turn, caused the contamination of two of the Town's drinking water wells. The Town's wells were shut down in 1979 because of the contamination.

Beginning in 1980, the Town decontaminated the wells and, in 1981, advised Valley Manufactured Products that it viewed Valley as a probable source of the contamination of the wells. Meetings and negotiations between the Town and the policyholders ensued. These negotiations were unsuccessful and in 1981 the Town sued the policyholders to recover for damages allegedly caused by the contamination. The policyholders did not notify the insurers of the filing of this suit until 1983 and did not notify the insurers of the tank leak, which allegedly caused the contamination until 1986.

Under the terms of the primary policies, the insured was required to give the insurance companies written notice "in the event of an occurrence" "as soon as practicable."¹ In the policies, "occurrence" is defined as "an accident, ... which results, during the policy period, in ... property damage neither expected nor intended from the standpoint of the insured." "Property damage" is defined as "injury to or destruction of tangible property."

As the policy called for written notice of the occurrence "as soon as practicable" after its happening, the insured was required to notify the insurer within a reasonable time. See Powell v. Fireman's Fund Ins. Co., 26 Mass.App. 508, 513, 529 N.E.2d 1228, 1231; LaPointe v. Shelby Mut. Ins. Co., 361 Mass. 558, 565, 281 N.E.2d 253 (1972). What is a reasonable time is a question of fact, but where the basic facts are undisputed, it becomes a question of law. Segal v. Aetna Cas. & Sur. Co., 337 Mass. 185, 188, 148 N.E.2d 659.

On the undisputed facts and for the reasons outlined below, I rule as a matter of law that the insured did not give notice of the occurrence to the insurers within a reasonable period of time and, moreover, that the insurers were prejudiced as a result. This ruling applies to both the primary and the excess insurers. The principle underlying the notice provision, that is, to enable the insurer reasonable and timely opportunity to investigate the underlying claim, applies to both primary and excess policies in the circumstances of this case.²

The first question which the Court must address is what effect, if any, a 1977 amendment to Massachusetts General Laws, chapter 175, Section 112, has on the coverage questions raised in this case. In 1977, the Legislature amended Mass.Gen.L. ch. 175, § 112. This amendment provides that "an insurance company shall not deny insurance coverage to an insured because of failure of an insured to seasonably notify an insurance company of an occurrence, incident, claim or of a suit founded upon an occurrence, incident or claim, which may give rise to liability insured against unless the insurance company has been prejudiced thereby." Before the passage of this amendment, an insured's failure to comply with the notice requirements of a policy relieved the insurer of liability on the policy even where the noncompliance caused no prejudice to the insurer.

All parties agree that this amendment applies prospectively only. See Spooner v. General Acc. Fire & Life Assur. Corp., 379 Mass. 377, 397 N.E.2d 1290 (1979). The parties disagree, however, on the date upon which the prospective application is effective. The policyholders contend that the date upon which the policyholders became obligated to notify the insurers of the "occurrence" is the date on which the amendment's application begins. The policyholders argue, accordingly, that they had no duty to notify the insurers of the "occurrence" until after October 16, 1977, the amendment's effective date, and, thus, that the amendment applies to this "occurrence." Accordingly, assert the policyholders, the insurers must show prejudice as well as untimely notice to deny coverage. By the same token, if the policyholders' duty to notify the insurer of the "occurrence" arose before October 16, 1977, the amendment does not apply to this "occurrence" and, thus, the insurers need show only untimely notice to deny coverage. The policyholders argue that since, in 1973, they allegedly had no actual knowledge of any property damage or of any liability as a result thereof, they had no obligation to notify the insured of the tank leak. According to the policyholders, it was not until 1979, at the earliest, when the well contamination was discovered, that they acquired actual knowledge of the groundwater contamination. Thus, since the duty to notify arose after the date of the amendment, the insurers must show actual prejudice in addition to untimely notice.

The insurers, on the other hand, argue that the operative date of the amendment is the date of execution of the insurance contract. According to the insurers, if the insurance contract was executed before October 16, 1977, then the insurer need only show untimely notice. If, however, the insurance contract was executed after October 16, 1977, then the insurer need show actual prejudice as well as untimely notice.

The Court concludes that the operative date is the date upon which the policyholders became obligated to notify the insurers of the "occurrence" and not the date upon which the insurance contract was executed. In re Acushnet River & New Bedford Harbor, 725 F.Supp. 1264, 1278 (D.Mass.1989).

For the purposes of the ...