Gerrish Corp. v. Aetna Cas. and Sur. Co.

• Decision Date: 08 November 1996
• Docket Number: No. 2:94-cv-72.,2:94-cv-72.
• Citation: 949 F.Supp. 236
• Court: U.S. District Court — District of Vermont
• Parties: GERRISH CORPORATION and Marvin Wolf, in his individual capacity and as general agent on behalf of Woodstock East Associates, a limited partnership, Plaintiffs, v. AETNA CASUALTY AND SURETY COMPANY and The Standard Fire Insurance Company, Defendants.

949 F.Supp. 236

GERRISH CORPORATION and Marvin Wolf, in his individual capacity and as general agent on behalf of Woodstock East Associates, a limited partnership, Plaintiffs, v. AETNA CASUALTY AND SURETY COMPANY and The Standard Fire Insurance Company, Defendants.

No. 2:94-cv-72.

United States District Court, D. Vermont.

November 8, 1996.

Robert E. Manchester, Manchester Law Offices, P.C., Burlington, VT, for Gerrish Corporation, Marvin Wolf.

Thomas Emerick McCormick, McCormick, Fitzpatrick, Kasper & Burchard, Burlington, VT, Kathleen S. Moore, James L. Ackerman, Maura D. Sullivan, Glenn E. Brace, Day, Berry & Howard, Boston, MA, for Aetna Casualty and Surety Company.

Thomas Emerick McCormick, McCormick, Fitzpatrick, Kasper & Burchard, Burlington, VT, Kathleen S. Moore, James L. Ackerman, Glenn E. Brace, Day, Berry & Howard, Boston, MA, for Standard Fire Insurance Co.

Thomas Emerick McCormick, McCormick, Fitzpatrick, Kasper & Burchard, Burlington, VT, for Aetna Casualty and Surety Company, Standard Fire Insurance Co.

Robert E. Manchester, Manchester Law Offices, P.C., Burlington, VT, for Gerrish Corporation, Marvin Wolf.

John W. Kessler, Assistant Atty. Gen., Vermont Attorney General's Office, Montpelier, VT, for State of Vermont.

OPINION AND ORDER

SESSIONS, District Judge.

In this declaratory judgment action Plaintiffs Gerrish Corporation ("Gerrish") and Marvin Wolf ("Wolf"), on behalf of himself and Woodstock East Associates ("WEA"), seek a ruling that Defendants The Aetna Casualty and Surety Company and The Standard Fire Insurance Company ("Aetna") are obligated to defend and indemnify them in connection with a claim brought by the State of Vermont for clean-up of environmental contamination of a site in Woodstock, Vermont. The matter is before the Court on objections by Plaintiffs and Defendants to the Magistrate Judge's Report and Recommendation that their respective motions for summary judgment be denied.

BACKGROUND

The facts of this case are discussed in the Report and Recommendation, and need not be repeated at length here. Gerrish owns a shopping center in Woodstock, Vermont known as "Woodstock East." Gerrish also operates an automotive dealership and a car wash and gas station on the property. In 1972, the gas station had underground gasoline storage tanks installed. In 1973, Gerrish discovered that gasoline was leaking from one of the tanks. The tanks were excavated and the leak repaired.

On May 31, 1984, WEA entered into an agreement with Gerrish to lease Woodstock East with an option to purchase the property. Gerrish became a sublessee of WEA, however, for the portion of Woodstock East occupied by the dealership and the gas station, and continued to operate the businesses. WEA never exercised its option to purchase Woodstock East, and Gerrish remained the owner of the property.

Gerrish carried insurance on the property through Universal Underwriters Insurance Company ("Universal"). Pursuant to the terms of the Lease and Option to Purchase, WEA also obtained comprehensive liability insurance on the property from Aetna, and Gerrish was added to this policy "as their interests may appear" ("ATIMA").

Aetna Special Multi-Peril Policy Number 009 SM 772094 FCS ("the 1984 Policy" or "the Policy") covered the Woodstock East property from May 31, 1984 to May 31, 1985.

On May 2, 1985 the State of Vermont Agency of Environmental Conservation ("Vt. AEC" or "the State") notified Wolf and Gerrish that Woodstock East was the source of petroleum pollution which was entering a natural drainage stream that empties directly into the Ottauquechee River. Pursuant to Vt.Stat.Ann. tit. 10, § 1283, the State gave notice to Gerrish as the operator of the businesses, and Wolf, whom it believed at the time to be the owner of the property, that as potentially responsible parties they could voluntarily undertake corrective measures.

On June 11, 1985, Gerrish notified Universal by letter of the State's claim. On August 23, 1985, WEA notified Aetna by letter of the State's claim. The insurance companies jointly hired Ground Water Technology, Inc. ("GTI") to investigate the contamination. GTI reported in 1988 that petroleum contamination existed in the soil and groundwater and had migrated onto neighboring properties and into a tributary of the Ottauquechee River.

This is not the first insurance coverage action related to the petroleum contamination of this property. In 1989, Gerrish brought an action in this Court against Universal, seeking a declaratory judgment that its liability insurance policy provided coverage for petroleum pollution cleanup. Having obtained a judgment in its favor, see Gerrish Corp. v. Universal Underwriters Ins. Co., 754 F.Supp. 358 (D.Vt.1990), aff'd, 947 F.2d 1023 (2d Cir.1991), cert. denied, 504 U.S. 973, 112 S.Ct. 2939, 119 L.Ed.2d 564 (1992), Gerrish then filed a bad faith action against Universal, Gerrish Corp. v. Universal Underwriters Ins. Co., No. 91-cv-15 (D.Vt.). That case was settled in 1993 by a payment from Universal to Gerrish and its president, Kurt Gerrish, in the amount of $2.7 million.

In 1991, WEA filed a negligence action in state superior court against Woodstock Structures, Inc. ("WSI"), the installers of the underground gasoline storage system, and obtained a default judgment of $630,488 plus interest and costs. Wolf v. Woodstock Structures, Inc., No. S305-91-WrC (Windsor Superior Court). In March 1994, WEA brought an action in this Court against WSI's insurer, United States Fidelity & Guaranty, seeking to satisfy the judgment. Wolf v. United States Fidelity & Guar. Co., No. 2:94-cv-70 (D.Vt.).

Gerrish failed to use any of its settlement from the Universal bad faith action to clean up the site. When the State of Vermont learned that Gerrish had not used any of the proceeds to clean up the site, it filed suit against Gerrish in Windsor Superior Court on November 4, 1993. State of Vermont v. Gerrish Corp., No. S0559-93WrC (Windsor Superior Court).¹ In December 1995, the superior court ordered Gerrish and its president to clean up the site. The action has been stayed as of September 24, 1996, because Gerrish filed for bankruptcy.

On November 9, 1993, Gerrish notified Aetna by letter of the State's suit. On March 11, 1994, Plaintiffs filed the instant action, seeking a declaration that the 1984 Aetna Policy covers the State's claim for pollution remediation.

The case was referred to the Magistrate Judge pursuant to 28 U.S.C. § 636(b)(1)(A) and (B). Plaintiffs and Defendants both moved for summary judgment.

The Magistrate Judge recommended that the parties' cross-motions for summary judgment be denied. He recommended that this Court conclude that the 1984 Aetna Policy covers the State of Vermont's pollution claim because: Gerrish was an insured party under the 1984 Aetna Policy; a liberalization clause in the Policy provided for the incorporation into the Policy of the ISO endorsement deleting the pollution exclusion; and the Policy provided Gerrish, as owner of the property, with coverage for the State of Vermont's claim. He found that whether Gerrish's late notice to Aetna precluded coverage involved unresolved issues of material fact; and that Aetna had not waived its coverage defenses, nor was it estopped from denying liability under the Policy. Finally, he recommended that, absent any coverage defenses, Aetna should be obligated to contribute to any insurance settlement with or judgment in favor of Gerrish in proportion to the liability limits in the policies involved. Magistrate's Report and Recommendation, November 13, 1995 ("R & R").

The Plaintiffs objected to the magistrate's setoff ruling. Specifically they contended that the Comprehensive General Liability coverage of the 1984 Policy was primary insurance, so that Aetna would not be entitled to any setoff, and that the Excess Indemnity. (Umbrella) Policy's coverage would be triggered once the primary CGL coverage limits were exhausted.

The Defendants objected to the magistrate's setoff ruling as well. In addition, they disagreed with the conclusions that issues of fact remained concerning whether late notice barred coverage, and that the 1984 Aetna Policy covers the State of Vermont's pollution claim.

A district judge must make a de novo determination of those portions of a magistrate judge's report and recommendation to which objection is made. 28 U.S.C. § 636(b)(1); Fed.R.Civ.P. 72(b). The court may then accept, reject, or modify, in whole or in part, the findings or recommendations made by the magistrate judge. Id. After careful review of the file, the Recommendation, the objections and responses to objections, the Court accepts the recommendation that the cross-motions for summary judgment be denied, and supplements the findings and reasoning in the Magistrate Judge's Report and Recommendation as set forth below.

DISCUSSION

Summary judgment should be rendered for a moving party if the court finds that there is "no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed.R.Civ.P. 56(c). Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 2552, 91 L.Ed.2d 265 (1986). A party moving for summary judgment has the burden of showing the absence of any genuine issue of material fact. Id., at 325, 106 S.Ct. at 2553-54. All justifiable inferences are to be drawn in favor of the party opposing the motion. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 255, 106 S.Ct. 2505, 2513-14, 91 L.Ed.2d 202 (1986), citing Adickes v. S.H. Kress & Co., 398 U.S. 144, 158-59, 90 S.Ct. 1598, 1608-09, 26 L.Ed.2d 142 (1970).

I. Named insureds under the 1984 Aetna Policy

The Magistrate Judge's recommendation is adopted, for the reasons stated in his report. By the plain language of the policy, Gerrish is a named insured for any claims arising out of its capacity as owner/lessor of the Woodstock East site.

If, alternatively, the Court were to look to...