Gelman Sciences, Inc. v. Fidelity and Cas. Co. of New York
| Decision Date | 21 January 1998 |
| Docket Number | 106678,Docket Nos. 105981 |
| Parties | GELMAN SCIENCES, INC., and Gelman Sciences, Inc., as Assignee of Fireman's Fund Insurance Companies, Plaintiffs-Appellants, v. FIDELITY AND CASUALTY COMPANY OF NEW YORK, a New Hampshire Company, Continental Insurance Company, a New Hampshire Company, and Continental Corporation, a New York Company, Defendants- Appellees. ARCO INDUSTRIES CORPORATION and Frederick C. Matthaei, Jr., Plaintiffs-Appellants, v. AMERICAN MOTORISTS INSURANCE COMPANY, Defendant-Appellee. |
| Court | Michigan Supreme Court |
Honigman, Miller, Schwartz & Cohn by Jay E. Brant, Philip A. Grashoff, Jr., and Mark A. Goldsmith, Detroit, and Butler, Durham & Willoughby by Sidney D. Durham, Parchment, for Plaintiffs-Appellants.
Miller, Canfield, Paddock & Stone by Kevin J. Moody and Clifford T. Flood, Lansing, and Drinker, Biddle & Reath LLP by T. Andrew Culbert and Paul H. Saint-Antoine, Philadelphia, PA, for Defendant-Appellee.
Frank J. Kelley, Attorney General, Thomas L. Casey, Solicitor General, and Harry G. Iwasko, Jr., Assistant Attorney General, Lansing, amici curiae, for State of Michigan.
Honigman, Miller, Schwartz & Cohn by Jay E. Brant, Philip A. Grashoff, Jr., and Mark A. Goldsmith, Detroit, amici curiae, for Masco Corporation, MascoTech, Inc., The Star Oil Company, Inc., and Collins & Aikman Products Co.
Butzel, Long by Frank B. Vecchio, Jack D. Shumate, John H. Dudley, Jr., and Edward M. Kalinka, Birmingham, amici curiae, for Petroleum Specialties, Inc.
We granted leave in these consolidated cases to determine whether the Court of Appeals properly adopted the "manifestation trigger theory" to deny coverage under standard comprehensive general liability and umbrella excess insurance policies allegedly issued by the defendant insurers. The policies essentially provided coverage for an "occurrence" taking place within the policy period. Plaintiffs sought coverage for expenses relating to environmental clean-up actions where the contamination was discovered years after the policy periods had expired, but where it allegedly occurred while the policies were in effect. The Court of Appeals held that coverage under the policies was not triggered because the contamination was not discovered within the policy periods, i.e., it did not manifest within the policies' effective dates. Because we find no support for the "manifestation trigger" in the relevant policy language, we reverse.
Plaintiff Gelman Sciences, Inc., manufactures microporous filters in a plant near Ann Arbor, Michigan. In 1964, it began using 1,4-dioxane on an experimental basis in its manufacturing process. From 1966 to 1984, Gelman regularly used 1,4-dioxane as a solvent to dissolve a polymer used in manufacturing filter sheets. Rinse water from the manufacturing process contained trace amounts of 1,4-dioxane. To dispose of this rinse water, Gelman utilized, pursuant to permit, a system of wastewater treatment ponds designed to biodegrade organic wastes. For two years in the late 1960s, treated water from one of the ponds leaked into a marshy area behind plaintiff's facility. Plaintiff consulted the Water Resource Commission and, pursuant to its suggestion stopped the overflow by dredging out the bottom of the pond to allow the wastewater to seep into the ground. In the 1970s, Gelman, also pursuant to permit, began disposing of wastewater using a spray irrigation system. Gelman was allegedly unaware that these permitted waste systems would not biodegrade 1,4-dioxane. In 1985, the Washtenaw County Health Department discovered that certain drinking water wells located near plaintiff's facility were allegedly contaminated with 1,4-dioxane. The state and numerous private parties sued Gelman for damages relating to the groundwater contamination.
Plaintiff Gelman, for itself and on behalf of one of its insurers with whom it had settled, brought this action, seeking to establish that defendants owed a duty to indemnify and defend these lawsuits under various standard comprehensive general liability (CGL) and umbrella excess insurance policies allegedly in effect between the years 1963 and 1969. Although Gelman has not located the actual policies, it has listed the policy numbers of the various CGL and umbrella policies and quotes the language relating to coverage contained in the standard documents.
The trial court granted summary disposition for the insurers, finding that even if the policies in fact existed, coverage was not triggered because the groundwater contamination was not discovered until after they expired. The Court of Appeals affirmed on the trigger of coverage issue. 214 Mich.App. 560, 543 N.W.2d 38 (1995). We granted leave to appeal, 1 limited to the issue whether the lower courts erroneously applied the date of manifestation of injury as the appropriate trigger of coverage for determination of insurance carrier responsibility to the insured.
This Court recounted the following summary of the factual and procedural background in Arco Industries Corp. v. American Motorists Ins. Co., 448 Mich. 395, 399-401, 531 N.W.2d 168 (1995), when it was previously before us concerning a different issue:
Plaintiff Arco Industries Corporation is a small automotive parts manufacturer that has operated a manufacturing plant in Schoolcraft, Michigan, since 1967. As part of the manufacturing process, the automotive parts are dipped into liquid plastisol or vinyl. Volatile organic compounds (VOCs) such as perchloroethylene, trichloroethylene, 1-2 dichloroethylene and vinyl chloride, were used to clean the parts during the manufacturing process and to remove plastisol from the plant floors. The plant floor was designed with a trench drain system that drained waste from the plant floor into an unlined seepage lagoon located in the back of the plant. As a result, VOCs contaminated the seepage lagoon and ground water.
In November, 1985, the Department of Natural Resources notified Arco that the seepage lagoon was contaminated with VOCs, and records indicated that Arco was the source of the contamination. After Arco's failure to resolve the problem, the DNR filed suit against Arco in federal court in an attempt to compel Arco to remedy the VOC contamination and collect claimed response costs. Subsequently, the State of Michigan and Arco entered into a consent decree whereby Arco agreed to pay the state $450,000 in response costs together with attorney fees. Arco also agreed to develop and implement a multimillion dollar ground water and soil remediation program.
Arco's insurer, AMICO, refused to defend or indemnify in the underlying litigation alleging that the insurance contract did not cover this type of incident. As a result, on February 4, 1987, Arco filed suit against AMICO, seeking to compel the insurer to honor its contractual obligations. In response to the suit, AMICO's defense was that this type of incident was not a covered "occurrence" within the meaning of the applicable comprehensive liability policies because Arco either expected or intended the pollution that resulted from its manufacturing process.
The trial court found that the contamination was not anticipated by Arco, and that there was no "showing that there was an intention by anyone to contaminate." Thus, on September 28, 1990, a judgment was entered compelling AMICO to pay its allocated share (68.63 percent) of all indemnifiable losses up to the aggregate limits of AMICO's coverage of $3.5 million.
The Court of Appeals, however, reversed the trial court's decision and held that AMICO did not have the responsibility to defend or indemnify Arco. The Court held that there were clearly intentional discharges of VOCs by Arco employees and Arco either should have foreseen the result of the intentional acts, knew, or should have known that such practices would result in a substantial probability that VOCs would contaminate the soil and ground water. 198 Mich.App. 352-353 [497 N.W.2d 190 (1993) ].
This Court reversed and remanded, holding that a subjective, rather than an objective, standard applies to determining whether the insured expected or intended the harm. Arco, supra. On remand, the Court of Appeals again held that the defendants owed no duty of coverage, this time relying on the "manifestation trigger" theory to hold that because the contamination was not discovered during the policy periods, coverage had not been triggered. 215 Mich.App. 633, 546 N.W.2d 709 (1996). This Court granted leave 2 on the trigger of coverage issue and consolidated the case with Gelman Sciences.
Comprehensive general liability policies insure against liabilities to third parties. The coverage typically is broad, extending generally to any business liability not expressly excluded. 3 Since the early 1940s, the insurance industry has drafted and periodically revised the standard CGL policy. 4 In the 1960s, it modified the standard CGL policy from insuring against "accidents" to insuring against "occurrences." 5 The standard CGL policies involved in these cases are primarily of this latter variety. They provide coverage for an "occurrence," defined typically as "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage, neither expected nor intended from the standpoint of the insured." 6
Courts have typically had difficulty applying the standard CGL language in cases involving gradual, continuous, or delayed property damage from pollution. The apparent difficulty is in determining when coverage is triggered under the relevant policies when the actual damage is not discovered until years after the pollution began. 7
Courts and commentators have discussed four possible theories for determining what event or events trigger coverage...
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