Highlands Ins. Co. v. Aerovox Inc.

• Decision Date: 07 February 1997
• Citation: 424 Mass. 226,676 N.E.2d 801
• Parties: , 44 ERC 1941 HIGHLANDS INSURANCE COMPANY v. AEROVOX INCORPORATED.
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 801

676 N.E.2d 801

424 Mass. 226, 44 ERC 1941

HIGHLANDS INSURANCE COMPANY v. AEROVOX INCORPORATED.

Supreme Judicial Court of Massachusetts,

Suffolk.

Argued Jan. 7, 1997.

Decided Feb. 7, 1997.

Anita Fox, District of Columbia (Lisa Campolo Goodheart with her) for plaintiff.

David A. Guberman (Robert J. Muldoon, Jr., Barbara O'Donnell with him) for defendant.

Rosanna Sattler, Jeffrey W. Armstrong, Laura Foggan, Robert B. Bell, Terri A. Ecklebarger, District of Columbia, for Insurance Environmental Litigation Association, amicus curiae, submitted a brief.

James McGuire, Ann V. Kramer, Sarah B. Hechtman, Ian Scheinmann, New York, for Atlas Tack Corporation, amicus curiae, submitted a brief.

Before WILKINS, C.J., and O'CONNOR, GREANEY, and FRIED, JJ.

FRIED, Judge.

Highlands Insurance Company (Highlands) seeks a declaration that it has no duty to indemnify Aerovox Incorporated (Aerovox) under Aerovox's general liability insurance policy for environmental cleanup costs Aerovox agreed to pay pursuant to a consent decree with the United States Environmental Protection Agency (EPA). The policy contains an exception to its general exclusion of environmental claims by which "sudden and accidental" releases of pollutants are covered by the policy. The Superior Court granted summary judgment to Highlands. Aerovox appealed, we transferred the case to this court on our own motion, and now affirm.

I

From 1956 to 1980, Re-Solve, Inc. (Re-Solve), operated a waste chemical reclamation facility located in North Dartmouth. Both the Massachusetts Department of Environmental Quality Engineering (DEQE) (now the Department of Environmental Protection) and the EPA have investigated the site, and it has been placed on the national priority list for purposes of environmental cleanup under the Superfund program. The EPA's record of decision (ROD) listed the most serious problem areas at the site and identified them as "contaminant sources." The four areas specified were the unlined lagoons where residues and sludge from the waste distilling process were discarded, the pond where cooling water used in the distillation process was discharged, the fields where waste oil was plowed into the soil, and the area around the former septic system and low drainage areas along a pipeline right of way. In addition to the sources of contamination identified in the ROD, an explosion and a fire in 1958 destroyed most of the facility which was subsequently rebuilt.

In 1983, Aerovox received notification from the EPA that it was considered a potentially responsible party (PRP) in respect to the Re-Solve site. Aerovox itself had never used the Re-Solve site, but its predecessor corporation, Belleville Industries, had shipped waste there from 1973 to 1978. The EPA determined that Aerovox and affiliated companies shipped 0.097% of the total volume of pollutants at the site. This group of companies was assigned a joint share of 7.5% of the total liability, of which Aerovox's individual share was later determined to be 2.37% of total liability. ¹ Aerovox and other PRPs entered into a consent decree with the EPA to settle this liability. Aerovox agreed to pay approximately $1.4 million. Liberty Mutual Insurance Company (Liberty Mutual) had issued primary insurance to Aerovox in 1980, and settled with Aerovox for $215,270. ² The Highlands policy in question was an excess (secondary) policy to Liberty Mutual's for that year. ³ Aerovox sought recovery from Highlands on its excess policy, but Highlands refused and brought this suit for a declaration that it has no duty to indemnify Aerovox.

The policy under which Aerovox seeks recovery provides:

"The company hereby agrees to indemnify the insured against such ultimate net loss in excess of the insured's primary limit as the insured sustains by reason of liability imposed upon the insured by law or assumed by the insured under contract for damages because of personal injury or property damage to which this policy applies, caused by each occurrence happening anywhere in the world."

An endorsement to the policy added the following exclusion:

"The policy shall not apply to personal injury or property damage arising out of the discharge, dispersal, release or escape of:

(1) smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental...."

The motion judge was initially concerned that there was no causal connection between the 1958 fire and Aerovox's liability but gave Aerovox an opportunity to try to demonstrate such a connection. Aerovox responded with an affidavit from David Herer, who was hired by the PRPs to study the Re-Solve site and create a plan of treatment. ⁴ Herer concluded that "it is my expert opinion that, as a consequence of the natural process of migration and the characteristic of solvents and other contaminants, especially DNAPLs, ⁵ to persist in the environment for prolonged periods of time, the solvents and contaminants released during the 1958 fire/explosion continued to cause ongoing property damage at the Re-Solve Site throughout the 1970s and 1980s." Based on this affidavit, the motion judge denied Highlands' motion for summary judgment on the ground that Aerovox had presented a question of fact because liability as a result of the fire would fall into the "sudden and accidental" exception to the exclusion. On reconsideration the judge reversed himself, determining that Aerovox bore the burden of proof that its liability was premised on a "sudden and accidental" release and finding that the fire could not have "contributed more than a de minimis amount of Aerovox's total liability." The judge determined that "Aerovox's affidavit that a 1958 fire caused some undifferentiated, continuing property damage during the policy period is not sufficient to defeat Highlands' motion for summary judgment."

II

Aerovox appeals on two grounds. First, it claims that the motion judge incorrectly placed the burden of proof on Aerovox to demonstrate that its liability was premised in part on a "sudden and accidental" release. Second, Aerovox claims that our decision in Nashua Corp. v. First State Ins. Co., 420 Mass. 196, 648 N.E.2d 1272 (1995), precludes summary judgment even in a pollution prone industry where there is evidence that some of the pollution resulted from releases that were "sudden and accidental."

A

It is an open question in Massachusetts which party has the burden of proving whether the "sudden and accidental" release exception applies. This court has expressly declined to take up the question. Polaroid Corp. v. Travelers Indem. Co., 414 Mass. 747, 753 n. 7, 610 N.E.2d 912 (1993) ("we need not decide whether the insurer or the insured has the burden of proof on the question of the sudden and accidental nature of any discharge"). ⁶ We have, however, spoken on the issue of burden of proof in insurance contracts generally. The insured bears the initial burden of "prov[ing] that the loss [is] within the description of the risks covered." Tumblin v. American Ins. Co., 344 Mass. 318, 320, 182 N.E.2d 306 (1962). Murray v. Continental Ins. Co., 313 Mass. 557, 563, 48 N.E.2d 145 (1943), expresses the rule as to exclusions:

"The general rule governing ... [is] that a plaintiff seeking to recover for breach of a duty or obligation created by a general clause of a contract, which also contains an exception descriptively limiting such duty or obligation, must allege and prove that his cause of action is within the contract and outside the exception; but that where the exception is in another separate and distinct clause of the ... contract defining ... the duty or obligation, then the burden is upon the party relying on such exception."

In that case, the court held that the insurer bore the burden to prove the applicability of an exclusion in a separately labeled section of the insurance contract labeled "Hazards not covered." Id. at 566, 48 N.E.2d 145. Under this principle, the insurer, Highlands, must bear the burden of showing that the general pollution exclusion applies. The parties agree on this point.

In this case, however, the policy goes one step further. The pollution exclusion contains an exception for "sudden and accidental" releases, and the question presented is whether the exception to the exclusion shifts the burden back to the insured or whether the insurer retains the burden as part of its burden to prove the exclusion generally. Highlands contends that, since the insured bears the initial burden of proving coverage, it is logical to place the burden back on the insured once the insurer has shown that coverage is excluded. Aerovox contends that, under Massachusetts law, the burden shifts only if the exception is in a separate and discrete section of the contract.

We conclude that the insured must bear the burden of proving that the contamination was caused by a sudden and accidental release. See Great Northern Indus., Inc. v. Hartford Acc. & Indem. Co., 40 Mass.App.Ct. 686, 690, 666 N.E.2d 1320 (1996); Interex Corp. v. Atlantic Mut. Ins. Co., 874 F.Supp. 1406, 1416-1417 (D.Mass.1995). ⁷ Once the insurer has demonstrated that a policy exclusion applies negating coverage, placing the burden on the insured to prove that the damage was caused by a sudden and accidental release is consistent with the general rule that the insured must prove that coverage applies, and absolves the insurer from bearing the difficult burden of proving the negative. In addition, we agree with the United States Court of Appeals for the Ninth Circuit that placing the burden on the insured is the better rule:

"Moreover, if the burden were on the insurer, the property owner would have an incentive to avoid finding out whether pollutants are being gradually...