James Graham Brown Foundation, Inc. v. St. Paul Fire & Marine Ins. Co.

• Decision Date: 03 July 1991
• Docket Number: No. 90-SC-242-DG,90-SC-242-DG
• Citation: 814 S.W.2d 273
• Parties: , 22 Envtl. L. Rep. 20,442 JAMES GRAHAM BROWN FOUNDATION, INC., Appellant, v. ST. PAUL FIRE & MARINE INSURANCE CO., Fireman's Fund Insurance Company, Continental Insurance Company, Indiana Insurance Company, and U.S. Fire Insurance Company, Appellees.
• Court: United States State Supreme Court — District of Kentucky

Page 273

814 S.W.2d 273

34 ERC 1700, 22 Envtl. L. Rep. 20,442

JAMES GRAHAM BROWN FOUNDATION, INC., Appellant, v. ST. PAUL FIRE & MARINE INSURANCE CO., Fireman's Fund Insurance Company, Continental Insurance Company Indiana Insurance Company, and U.S. Fire Insurance Company, Appellees.

No. 90-SC-242-DG.

Supreme Court of Kentucky.

July 3, 1991.

As Modified on Denial of Rehearing Sept. 26, 1991.

Lively M. Wilson, Stites & Harbison, Louisville, Mark R. Overstreet, Judith A. Villines, Stites & Harbison, Frankfort, for appellant.

Charles S. Cassis, Mark R. Feather, Brown, Todd & Heyburn, William S. Bowman, Stiles & Bowman, William D. Grubbs, Gregory Bolzle, Woodward, Hobson & Fulton, William A. Miller, Jr., Washer, Kaplan, Rothschild, Aberson & Miller, Louisville, Randy M. Mott, Robert T. Lee, Mott Pearce Williams & Lee PC, Lawrence E. Carr, Jr., Margaret H. Warner, Kyle A. Kane, Carr Goodson & Lee P.C., Washington, D.C., Daniel A. Bartoldus, Lawrence A. Levy, William M. Savino, Rivkin, Radler, Bayh & Hart & Kremer, Uniondale, N.Y., Scott J. Schwarz, Mattioni Mattioni & Mattioni, Philadelphia, Pa., for appellees.

Thomas W. Bruner, Marilyn E. Kerst, Stephen P. Keim, Wiley Rein & Fielding, Washington, D.C., F. Larkin Fore, Dan T. Schwartz, Mulloy Walz Wetterer Fore & Schwartz, Victor L. Baltzell, Jr., Miller Mosley Clare & Townes, Louisville, Dennis J. Conniff, Dept. of Law, Natural Resources and Environmental Protection Cabinet, Frankfort, William H. Allen, William F. Greaney, Covington & Burling, Washington, D.C., for amicus curiae.

WINTERSHEIMER, Justice.

This appeal is from a summary judgment in a declaratory judgment action which determined that comprehensive general liability insurance policies do not provide either indemnity for or a defense to the environmental claims against the insured.

The general issue relates to the availability of insurance coverage for environmental claims. This specific case involves whether comprehensive general liability policies of insurance purchased for wood preserving treatment plants provide coverage for the cleanup of environmental damage when ordered by a federal agency.

The James Graham Brown Foundation inherited from its benefactor sole ownership of stock in a corporation which owned three wood preserving treatment plants. These plants process utility poles and railroad ties to protect them from natural deterioration. The process involved injection under high pressure into the poles of either creosote or PCP. The plants were located in three different states, one in Louisville, Kentucky, one in Brownville, Alabama and another in Live Oak, Florida. All of the sites have significant environmental cleanup problems. The damage had been caused to the areas surrounding the plants due to waste water discharge, chemical spills and rainwater runoff.

The Foundation had fifteen general liability policies and fifteen excess policies from the insurers. All the policies provide that the insurance companies will indemnify the Foundation for "all sums which the insured will become legally obligated to pay as damages because of ... property damage to which this insurance applies, caused by an occurrence." Each policy defines "occurrence" in essentially the same manner as:

An accident, including continuous or repeated exposure to conditions, which result in bodily injury or property damage, neither expected nor intended from the standpoint of the insured.

Damage at the Live Oak location was such that the Federal Environmental Protection Agency ordered a cleanup pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, also known as CERCLA, pursuant to the Federal Superfund Legislation. Federal and state environmental agencies also warned of the possibility of such orders affecting the two other sites.

The Foundation sought coverage for the cleanup from the insurance carriers from which they had purchased comprehensive general liability insurance policies. Some of the insurers initially provided a defense for the Foundation but eventually all insurers withdrew their defense.

The Foundation filed a declaration of rights action in circuit court seeking to settle the separate questions of coverage for the cleanup and the duty to defend. In response to motions for summary judgment, the circuit judge ruled in favor of the insurance companies in regard to both the coverage issue and the duty to defend. The coverage issue ruling was made on the basis of the application of the definition of "occurrence" as used in the policies. The circuit judge found that there was no covered "occurrence" because the operators of the processing plants were aware of the damage that was being incurred by the routine operations. The result was expected or intended because they knew of this damage and consequently there was no "occurrence" and no insurance coverage. The duty-to-defend issue was disposed of by stating that because the insurance companies owed no coverage on the damages, the companies could decide not to defend pursuant to Cincinnati Insurance Company v. Vance, Ky., 730 S.W.2d 521 (1987). The Court of Appeals affirmed the decision of the circuit court and this Court granted discretionary review.

A determination of whether the order from the environmental agency constitutes a loss within the policy term "damages" is not necessary in this case at this time as counsel for both sides conceded at oral argument under direct questioning by the Court.

The initial issue presented is whether the circuit court ruling granting summary judgment is in error because there were genuine issues of material fact. The primary question in this case relates to the availability of insurance coverage for environmental damage. Several other issues involve the duty to defend and the application of the holding in Vance, supra, as to whether a duty to defend is based on allegations in the complaint or upon the ultimate duty to indemnify the loss; whether an insurer may be held responsible for defense costs incurred prior to its actual withdrawal of the defense even though the insurance companies did defend under a reservation of rights; and a question in regard to the insurance companies' duty to act in good faith while conducting a defense under a reservation of rights.

We must first consider the summary judgment standard issue. The Court of Appeals and the trial court impermissibly acted as a finder of fact and concluded improperly that there was no genuine issue of material fact and that the Foundation expected and intended the alleged damage which resulted in the environmental claims.

The purpose of summary judgment and the standard to be used in reviewing such an action require that the procedure is designed to expedite the disposition of cases. The grounds for summary judgment are that there is no genuine issue as to any material fact and the moving party is entitled to a judgment as a matter of law. The circuit court is not authorized to render a summary judgment if there exists a material fact which requires a trial. The function of summary judgment is to terminate the litigation when it appears that it would be impossible for the respondent to produce evidence at the trial warranting a judgment in his favor. It is proper where the movant shows that the adverse party could not prevail under any circumstances. Civil Rule 56.03; Paintsville Hospital Company v. Rose, Ky., 683 S.W.2d 255 (1985); Steelvest, Inc. v. Scansteel Service Center, Inc., Ky., 807 S.W.2d 476 (1991). The only duty of the court on a motion for summary judgment is to determine whether there are genuine issues to be tried and not to resolve them. Mitchell v. Jones, Ky., 283 S.W.2d 716 (1955). The burden on an insurer is to demonstrate the absence of a genuine issue of material fact and any doubts about the propriety of summary judgment are to be resolved against the insurer. Clifton v. Midway College, Ky., 702 S.W.2d 835 (1985). Questions relating to the credibility of witnesses and the weight of the evidence must await trial. Ogden v. Employers Fire Insurance Company, Ky., 503 S.W.2d 727 (1973). Whether an insured intended the consequences of its action is normally a question of fact and not one of law. The determination of whether an insured expected or intended the damage resulting in the claim is for the jury. Munzer v. St. Paul Fire & Marine Insurance, 145 A.D.2d 193, 538 N.Y.S.2d 633 (1989). Determination of intent is normally inappropriate for summary judgment. Wilson v. Seiter, 893 F.2d 861 (6th Cir.1990). Summary judgment can be proper on any issue including state of mind questions such as intent and expectation. Generally when any claim has no substance or controlling facts are not in dispute, summary judgment can be proper. In this case, the record indicates that there are substantial disputed areas of fact including the factual question of intent. The record does not compel only one reasonable inference.

Certainly the circuit judge is not absolutely prohibited from inferring on summary judgment that an insured intended or expected damage regardless of whether the objective or subjective test is used. In some cases, it is almost irrelevant whether an objective or subjective test is applied because of the circumstances. This case is not in such a posture, and summary judgment was inappropriate.

We recognize the difficulty of establishing the subjective intent or expectation which was the concern of the Court of Appeals. However, we believe the Court of Appeals has sanctioned error in its misplaced concern for the problems of proof.

In concluding that there was no genuine issue of material fact concerning the Foundation's expectations and intent, the testimony was impermissibly weighed and the evidence of damage was disregarded. The Foundation noted four areas of evidence indicating that it did not intend or expect the alleged damage to the ground water which gave rise to the...