Hardwick Recycling & Salvage, Inc. v. Acadia Insurance Company, 2004 VT 124 (VT 12/17/2004)

• Decision Date: 17 December 2004
• Docket Number: No. 2003-317, April Term, 2004,2003-317, April Term, 2004
• Citation: 2004 VT 124
• Court: Vermont Supreme Court
• Parties: Hardwick Recycling & Salvage, Inc. f/k/a Green Mountain Sanitation, Inc., and Richard F. Towns v. Acadia Insurance Company

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2004 VT 124

Hardwick Recycling & Salvage, Inc. f/k/a Green Mountain Sanitation, Inc., and Richard F. Towns v. Acadia Insurance Company

No. 2003-317, April Term, 2004

Supreme Court of Vermont

December 17, 2004

On Appeal from Chittenden Superior Court, Matthew I. Katz, J.

John L. Franco, Jr., Burlington, for Plaintiffs-Appellants.

Thomas M. Higgins of Pierson Wadhams Quinn Yates & Coffrin, Burlington, for Defendant-Appellee.

PRESENT: Dooley, Johnson, Skoglund and Reiber, JJ., and Gibson, J. (Ret.), Specially Assigned.

JOHNSON, J.

¶ 1. Plaintiffs sued for coverage under the pollution coverage included in their comprehensive general liability insurance policy issued by defendant Acadia Insurance Company. Plaintiffs appeal from the trial court's order denying their partial summary judgment motion seeking a declaration that Acadia owes them a defense against a pending environmental enforcement action brought by the State in 2000; the court entered judgment for Acadia instead. Plaintiffs contend that the trial court erred in holding that the State's 1995 claims against them for environmental site investigation and remediation planning because of contamination on their property were not claims for "damages" covered by the policy, and thus did not trigger Acadia's duty to defend against the enforcement action. We conclude that the trial court incorrectly interpreted the policy term "damages." Therefore we reverse one ground upon which the trial court based its opinion, and we remand for additional proceedings necessary to resolve outstanding issues in the case.

¶ 2. Plaintiffs Hardwick Recycling & Salvage, Inc., (Hardwick Recycling), Green Mountain Sanitation, Inc. (GMS), and Richard Towns are all named insureds under a liability insurance policy issued by Acadia. The policy coverage commenced in September 1994 and was renewed annually through September 2001, although the parties limited the coverage over time. During the years in question, Richard Towns was the president and principal owner of GMS. Hardwick Recycling is a subsidiary of GMS.

¶ 3. The relevant portions of plaintiffs' policy provide that Acadia "will pay those sums that the insured becomes legally obligated to pay as damages because of `bodily injury' or `property damage' included within the `pollution liability hazard' to which this insurance applies." The definition of "property damage" includes "[p]hysical injury to tangible property, including all resulting loss of use of that property." "[P]ollution liability hazard" is defined as "property damage" resulting from "pollutants" at or from property owned by the insured. "Pollutants" include "any solid, liquid, [or] gaseous . . . irritant . . . including . .. chemicals and waste. Waste includes materials to be recycled. . . ." (Emphasis added.)

¶ 4. The pollution coverage under the policy was provided on a "claims made" basis. Specifically, the policy provides:

(1) The "bodily injury" or "property damage" is caused by an "occurrence" that takes place in the "coverage territory";

(2) The "bodily injury" or "property damage" occurs during the policy period; and

(3) A claim for damages because of the "bodily injury" or "property damage" is first made against any insured, in accordance with paragraph c. below, during the policy period.

. . . .

(c) A claim by a person or organization seeking damages will be deemed to have been made at the earlier of the following times :

(1) When notice of such claim is received and recorded by any insured or by us, whichever comes first . . . . (Emphasis added.)

¶ 5. In 1995, the State, through the Secretary of the Agency of Natural Resources (ANR), initiated a series of enforcement actions in connection with plaintiffs' alleged pollution-related violations of environmental and waste management laws. First, in March 1995, the State filed an "Application for Emergency Order" in the Vermont Environmental Court. Among other things, the application alleged "[o]peration of the [Hardwick Recycling] transfer station is an immediate threat to the health, safety and welfare of the citizens of Vermont as a result of the discharge of solid waste leachate into the floodplain and waters of the Lamoille River." The Environmental Court denied the State's application without prejudice because it concluded that the application alleged violations of plaintiffs' Act 250 permit, and the court was empowered to enforce only emergency orders involving unpermitted activity.

¶ 6. In May 1995, the State, through an Environmental Enforcement Officer, requested and received an Access Order from the Caledonia District Court. In its application supported by five affidavits attesting to environmental contamination, the State alleged that "reasonable grounds exist to suspect violations of Vermont Environmental Laws, and Vermont Solid Waste Management Regulations." The court granted the State's request, and ordered that plaintiffs provide "full access" to the State for investigation of the alleged pollution on the premises.

¶ 7. As an apparent follow-up to investigations conducted pursuant to the May access order, the State, through the Hazardous Materials Management Division of ANR, issued a "Request for investigative activities at Green Mountain Sanitation, Hardwick (VT DEC Site #95-1792)," to plaintiffs' consultant, which was copied to plaintiffs' counsel and Richard Towns among others. The letter stated that DEC personnel had discovered "(1) . . . surficial [sic] oil discharge; (2) a leaking drum which contained volatile organic compounds; (3) elevated levels of total petroleum hydrocarbons in the swale which discharges into the Lamoille River and; (4) buried solid waste material throughout the property." The State concluded that additional work was necessary to determine if further "investigation, monitoring and /or remediation" was warranted and thus requested plaintiffs to undertake substantial on-site work. Inexplicably, the State took no further enforcement action until October 2000.

¶ 8. In October 2000, the State, through the Attorney General, initiated a civil suit against plaintiffs in Washington Superior Court. In its complaint, the State alleged that, between 1992 and 1995, plaintiffs illegally buried solid waste on the Hardwick Recycling premises in violation of Vermont Solid Waste Management Rule 6-302(c), 10 V.S.A. § 6605(a), and Act 250. The State thus requested that the court find plaintiffs in violation of these laws, and:

(4) order the defendants to extract and properly dispose of any wastes illegally stored at or disposed of at the [Hardwick Recycling facility];

(5) order the defendants to remediate the site to mitigate any hazard to human health or the environment; [and]

(6) order the defendants to pay civil penalties, costs, and reimbursement for the costs of enforcement, including legal fees, in accordance with 10 V.S.A. § 8221.

¶ 9. Shortly after the State filed its complaint, plaintiffs notified Acadia of the suit in a letter from plaintiffs' attorney. The letter stated that the allegations in the State's complaint "were first brought to the attention of [plaintiffs] in May of 1995" and that "[f]or reasons unknown to us the State has elected to now prosecute this claim some 5 ½ years later." Plaintiffs did not attach any of the 1995 documents to the claim letter, or otherwise explain the details of the 1995 claims, including the Environmental Court order issued in March 1995.

¶ 10. Even though plaintiffs sought coverage for a defense and, if needed, indemnification for costs associated with the State's 2000 suit, their letter identified policy CPA 001066-10, the policy that was in effect from 1994 to 1995, as the applicable source of coverage. Plaintiffs' pollution liability coverage from Acadia was eliminated in 1997; however, the 1994-1995 policy provides that "[a]ll claims for injury or damage arising out of a discharge, release or escape of pollutants . . . shall be deemed to have been made at the time the first of those claims is made against any insured."

¶ 11. In a reply letter sent by Acadia's Director of P&C Claims, Acadia informed plaintiffs' counsel that there was no coverage for the State's environmental claim because "[a]ll [t]he Acadia policies were written with applicable pollution exclusions" and "[i]n addition, there is no coverage for the allegations of illegal acts." Defendant's reply letter also stated that, because of a "Consent to Rate Application," "[c]overage for pollution was eliminated from the Acadia policies."

¶ 12. In response to Acadia's denial of coverage, plaintiffs sued Acadia in December 2001 seeking a declaratory judgment that it has a duty to defend plaintiffs in the suit brought against them by the State in 2000, and that it owes plaintiffs their incurred defense costs to date. Acadia answered interposing eighteen affirmative defenses. Plaintiffs then moved for partial summary judgment on all but defendant's pollution exclusion defense because the above-quoted denial of coverage letter did not reserve Acadia's right to later deny coverage on other grounds. Judge Teachout granted plaintiffs' motion.

¶ 13. Plaintiffs next moved for partial summary judgment that defendant owed and owes plaintiffs a defense in the underlying lawsuit brought by the State in 2000. Plaintiffs argued that the 1994-1995 policy provided coverage for the 2000 suit because it was based on "claims" that the State first made in 1995, even though their policy in effect in 2000 did not include pollution coverage. The trial court, Judge Katz presiding, agreed with defendant that the claims brought by the State in 1995 did not constitute claims for "damages," and thus did not trigger coverage during that policy term. Though its conclusion on "damages" should have ended the entire case in defendant's favor, the court ruled that additional discovery could take place on defendant's late notice defense because it was a fact question. Plain...