Hazen Paper Co. v. U.S. Fidelity and Guar. Co.

Decision Date14 June 1990
Citation407 Mass. 689,555 N.E.2d 576
CourtUnited States State Supreme Judicial Court of Massachusetts Supreme Court

J. Smirti, Jr., Uniondale, N.Y., and John D. Lanoue, Adams (Edward T. Finneran, III, Uniondale, N.Y., and David M. Cassidy, New York City, with them) for defendant.

Paul F. Ware, Jr. (Nancer H. Ballard, Boston, with him) for plaintiff.

Thomas W. Brunner, James M. Johnstone, Lyn S. Entzeroth and John W. Cavilia, Washington, D.C., and Peter G. Hermes and Molly H. Sherden, Boston, for Ins. Environmental Litigation Ass'n and another, amici curiae, submitted a brief.

Henry P. Sorett and Anne W. Chisholm, Boston, for Massachusetts Nat. Gas Council, amicus curiae, submitted a brief.

Thomas L. Crotty, Jr., and James E. McGuire, Boston, for Haartz Corp. and others, amici curiae, joined in a brief.


WILKINS, Justice.

Hazen Paper Company (Hazen) brought this action in October, 1986, seeking, among other things, a declaration that its insurer (USF & G) was obliged to defend and indemnify it with respect to claims against Hazen arising out of alleged environmental pollution by a facility to which Hazen had sent solvents for recycling from 1976 to 1979.

In 1983, the United States Environmental Protection Agency (EPA) notified Hazen by letter that Hazen was a potentially responsible party (PRP) under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (42 U.S.C. §§ 9601-9657 [1982] ), because of the release of hazardous substances at the Re-Solve, Inc., hazardous waste facility in North Dartmouth; that the EPA and the Massachusetts Department of Environmental Quality Engineering (DEQE) (now the Department of Environmental Protection) had incurred and would incur expenses for remedial action taken in response to releases of hazardous substances at that site; and that they intended to seek from Hazen, and others, reimbursement for costs incurred and commitments toward the cost of future response measures. In 1986, the DEQE by letter notified the Re-Solve Generators Committee (and Hazen) that, pursuant to G.L. c. 21E (1988 ed.), it was seeking reimbursement for the cost of removing 115 drums of hazardous material from the Re-Solve site.

On cross motions for summary judgment, a judge of the Superior Court ruled that Hazen was "entitled to a declaratory judgment declaring (1) that defendant [USF & G] is obligated to defend Hazen against the claims made against Hazen by the [EPA] and the [DEQE] and to reimburse Hazen for its defense costs incurred to date; and (2) that USF & G is obligated to indemnify and pay on behalf of Hazen any sums for which Hazen is liable as a result of the EPA's and the DEQE's claims." A single justice of the Appeals Court authorized USF & G to appeal from the interlocutory order (a count based on G.L. c. 93A and G.L. c. 176D remained undisposed of). This court granted each party's application for direct appellate review.

USF & G denies any obligation to defend Hazen against the governmental claims, argues that the claims do not fall within the basic recitation of the scope of policy coverage, and asserts that, in any event, the pollution exclusion clause relieves it of any duty to indemnify Hazen with respect to those claims. The applicable USF & G policies, which include standard comprehensive general liability insurance coverage, provide that USF & G will pay all sums Hazen "shall become legally obligated to pay as damages because of ... property damage to which this insurance applies, caused by an occurrence, and [USF & G] shall have the right and duty to defend any suit against the insured seeking damages on account of such ... property damage" (emphasis supplied). USF & G disclaims any duty to afford Hazen a defense with respect to the claims asserted in the letters of the EPA and DEQE because neither letter involves a "suit" against Hazen within the meaning of the word "suit" in the policy. USF & G denies any duty to indemnify Hazen with respect to claims for reimbursement for cleanup costs, arguing that such costs are not "damages" within the policy terms and that, in any event, any amounts payable by Hazen are not amounts Hazen is obliged to pay because of "property damage." The motion judge rejected USF & G's arguments on these points. We agree with him as to the claim asserted by the EPA but not as to the independent claim of the DEQE.

We disagree with the motion judge's allowance of partial summary judgment in favor of Hazen based on his ruling that the policies' pollution exclusion clauses do not apply to the releases of pollutants in this case. In Lumbermens Mut. Casualty Co. v. Belleville Indus., ante, 407 Mass. 675, 555 N.E.2d 568 (1990), decided today, we have discussed the same standard form of pollution exclusion clause that is applicable in this case. We interpreted it as providing coverage for damage caused by the discharge or release of pollutants only if the discharge or release was not only accidental but also "sudden," in the sense of an unexpected, abrupt discharge or release. Id. at 680, 555 N.E.2d 568. Hazen has not demonstrated, on the summary judgment record, that there is no dispute of material fact as to whether releases or discharges of pollutants at the Re-Solve site, for which Hazen may be responsible, were sudden and accidental. The record is silent on whether the release of any pollutants at that site was sudden and accidental. Consequently, that portion of the declaration of rights that states that USF & G has an obligation to indemnify Hazen with respect to claims for cleanup costs at the Re-Solve site must be vacated. The question whether the release of any damage-causing pollutants was sudden and accidental requires further attention in the Superior Court. 1

We shall now turn to an explanation of why the claims asserted by the EPA (but not that independently asserted by DEQE) are (1) ones as to which USF & G had a duty to defend and (2) involve claims for damages because of property damage.

1. USF & G argues that it has no duty to defend Hazen with respect to any claims of the EPA and DEQE until those claims are asserted in a lawsuit. Hazen replies that the letters of notification from those agencies had the same practical effect as the filing of a complaint in a legal action because Hazen's rights and obligations could be substantially affected by actions and determinations occurring before any lawsuit would be commenced.

The policy provides that USF & G has the "duty to defend any suit against [Hazen] seeking damages on account of ... property damage" to which the insurance applies. In the next section of this opinion we shall discuss whether the governmental claims seek "damages on account of ... property damage." Here, the question is how we should read the word "suit," which is not defined in the policy. Obviously, on the record no lawsuit has been brought. Literally, there is no suit. That fact alone has been sufficient to provide the answer for some courts. See Aetna Casualty & Sur. Co. v. Gulf Resources & Chem. Corp., 709 F.Supp. 958, 960 (D.Idaho 1989) (Idaho law) ("under the plain meaning of the policy terms, no duty to defend has been triggered"); Technicon Elecs. Corp. v. American Home Assurance Co., 141 A.D.2d 124, 145-146, 533 N.Y.S.2d 91 (1988), aff'd on other grounds, 74 N.Y.2d 66, 544 N.Y.S.2d 531, 542 N.E.2d 1048 (1989). It is, however, not sufficient to provide an answer for us.

By a letter dated May 13, 1983, and addressed to Hazen in Holyoke, EPA notified Hazen "of liability which your company may incur or may have incurred in connection with the Re-Solve Waste Facility in North Dartmouth." EPA said that it had "determined that actual releases of hazardous substances, as defined in [42 U.S.C. § 9601], are occurring at the Re-Solve Facility." EPA and DEQE had spent public funds on "activities in response to these releases." EPA and DEQE were prepared to contract for the "longer term phases of clean-up of the site," and EPA would undertake further activities "unless EPA determines that such action will be done properly by a responsible party." EPA had concluded, based on the records from the Re-Solve facility, that Hazen might be a responsible party with respect to that site.

EPA wrote that it wished to discuss Hazen's "voluntary involvement in the measures necessary to remedy the problems presented by the hazardous substances at Re-Solve." A superficial view of the EPA letter might lead one to conclude that it is not analogous to a complaint. See, e.g., Technicon Elecs. Corp. v. American Home Assurance Co., supra at 146, 533 N.Y.S.2d 91 (EPA letter was invitation to voluntary action, not coercive demand letter). The letter continues, however, declaring that "the only form of voluntary involvement" that EPA would consider is "commitment to a complete implementation of all the measures needed on the site proper and reimbursement of the expenses already incurred by EPA and DEQE." It then describes those measures. EPA asked for a written response within thirty days, announced a planned meeting for all potentially responsible parties, and requested (pursuant to 42 U.S.C. §§ 9604 and 6927 [1982] ) information and records regarding hazardous substances that Hazen sent to the Re-Solve facility. The letter advised Hazen of criminal penalties for any failure to furnish the requested information. EPA stated that, if it were to receive no response within the next thirty days, it would assume that Hazen "has declined to undertake voluntary response activities at the Re-Solve site."

The question is a close one. The authorities are divided on the point. 2 We conclude that the litigation defense protection that Hazen purchased from USF & G would be substantially compromised if USF & G...

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