Kruger Commodities, Inc. v. US Fidelity and Guar.

• Court: U.S. District Court — Middle District of Alabama
• Writing for the Court: MYRON H. THOMPSON
• Citation: Kruger Commodities, Inc. v. US Fidelity and Guar., 923 F. Supp. 1474 (M.D. Ala. 1996)
• Decision Date: 18 April 1996
• Docket Number: Civ. A. No. 95-T-942-N.
• Parties: KRUGER COMMODITIES, INC., Plaintiff, v. UNITED STATES FIDELITY AND GUARANTY, Defendant.

923 F. Supp. 1474

KRUGER COMMODITIES, INC., Plaintiff, v. UNITED STATES FIDELITY AND GUARANTY, Defendant.

Civ. A. No. 95-T-942-N.

United States District Court, M.D. Alabama, Northern Division.

April 18, 1996.

COPYRIGHT MATERIAL OMITTED

Harry Cole, Hill, Hill, Carter, Franco, Cole & Black, Montgomery, AL, for plaintiff.

Armstead Lester Hayes, III, Melton, Espy, Williams & Hayes, P.C., Montgomery, AL, Christa L. Collins, Robert J. Wahl, Blasingame, Forizs & Smiljanich, P.A., St. Petersburg, FL, for National Fire Insurance Company of Hartford, Connecticut, defendant.

Richard E. Broughton, Fred B. Matthews, Ball, Ball, Matthews & Novak, P.A., Montgomery, AL, Frank Winston, Jr., Wiley, Rein & Fielding, Washington, DC, for United States Fidelity and Guaranty Company, defendant.

MEMORANDUM OPINION

MYRON H. THOMPSON, Chief Judge.

Plaintiff Kruger Commodities, Inc. brought this lawsuit claiming that a civil judgment against the company is covered by its commercial liability insurance policy provided by defendant United States Fidelity and Guaranty (USF & G). Kruger asserts state-law claims for breach of contract and bad faith, and seeks compensatory and punitive damages. Removal jurisdiction of this court is based on diversity of citizenship between the parties. 28 U.S.C.A. §§ 1332, 1441 (West 1966 & Supp.1993). This lawsuit is now before the court on summary judgment motions filed by each party on February 2, 1996. Kruger's motion will be denied, and USF & G's motion will be granted.

I. STANDARD FOR SUMMARY JUDGMENT

Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment is appropriate where "there is no genuine issue as to any material fact and ... the moving party is entitled to a judgment as a matter of law." Once the party seeking summary judgment has informed the court of the basis for its motion, the burden shifts to the non-moving party to demonstrate why summary judgment would be inappropriate. Celotex Corp. v. Catrett, 477 U.S. 317, 323, 106 S.Ct. 2548, 2553, 91 L.Ed.2d 265 (1986); see also Fitzpatrick v. City of Atlanta, 2 F.3d 1112, 1115-17 (11th Cir.1993) (discussing how the responsibilities on the movant and the nonmovant vary depending on whether the legal issues, as to which the facts in question pertain, are ones on which the movant or nonmovant bears the burden of proof at trial). In making its determination, the court must view all evidence and any factual inferences in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 1356, 89 L.Ed.2d 538 (1986).

II. BACKGROUND

From December 1991 until December 1994, Kruger operated a rendering plant in Montgomery which processed used cooking oils and animal carcasses. Henry and Peggy Davenport operated a recreational vehicle sales business on nearby property. Shortly after the plant began operating, the Davenports started complaining about offensive odors emanating from the plant. In October 1991, the Davenports filed suit alleging that the odors hurt their business sales and made them and their customers physically ill. A jury in Montgomery County Circuit Court awarded the Davenports general damages of $300,000. Kruger later negotiated a settlement of $272,000 with the Davenports. Kruger was covered by commercial liability insurance policies from National Fire Insurance Company and USF & G. Kruger called upon both companies to indemnify it for its payment to the Davenports and filed suit when they did not. National Fire reached a settlement with Kruger, leaving USF & G as the lone defendant. Two parts of the USF & G policy are relevant to this case.

Part A of the policy covers "bodily injury" liability. Under the policy, "`bodily injury' means bodily injury, sickness or disease sustained by a person, including death resulting from any of these at any time." Part A contains a "pollution exclusion" which excludes coverage for the following:

"f. (1) `Bodily injury' ... arising out of the actual, alleged or threatened discharge, dispersal, seepage, migration, release or escape of pollutants.

(a) At or from any premises, site or location which is or was at any time owned or occupied by, or rented or loaned to, any insured;

(b) At or from any premises, site or location which is or was at any time used by or for any insured or to others for the handling, storage, disposal, processing or treatment of waste;

(c) Which are or were at any time transported, handled, stored treated, disposed of, or processed as waste by or for any insured or any person or organization for whom you may be legally responsible ...

(2) Any loss, cost or expense arising out of any:

(a) Request, demand or order that any insured or others test for, monitor, clean up, remove, contain, treat, detoxify or neutralize or in any way respond to, or assessing the effects of pollutants.

(b) Claim or suit by or on behalf of a governmental authority for damages because of testing for, monitoring, cleaning up, removing, containing, treating, detoxifying or neutralizing, or in any way responding to, or assessing the effects of pollutants.

Pollutants means any solid, liquid, gaseous, or thermal irritant or contaminant, including smoke, vapor, soot, fumes, acids, alkalis, chemicals and waste. Waste includes materials to be recycled, reconditioned or reclaimed."

Part B of the USF & G policy covers "personal injury" liability. Personal injury is defined by the policy as follows:

"10. `Personal injury' means injury, other than `bodily injury,' arising out of one or more of the following offenses:

a. False arrest, detention, or imprisonment

b. Malicious prosecution

c. The wrongful eviction from, wrongful entry into, or invasion of the right of private occupancy of a room, dwelling or premises that a person occupies by or on behalf of its owner, landlord, or lessor ..."

Kruger claims that coverage is mandated by the bodily injury and personal injury provisions of the contract.

III. DISCUSSION

A. Choice of law

When a federal court exercises diversity-of-citizenship jurisdiction, the court is bound to apply the substantive law of the state in which it sits. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938). The Erie doctrine extends to choice-of-law questions, so that this court sitting in diversity must apply the forum state's conflict-of-law rules. Klaxon Co. v. Stentor Elec. Mfg. Co., 313 U.S. 487, 496, 61 S.Ct. 1020, 1021, 85 L.Ed. 1477 (1941); Tang How v. Edward J. Gerrits, Inc., 961 F.2d 174, 178-79 (11th Cir.1992). Therefore, this court must follow Alabama's choice-of-law rules.

The general choice-of-law rule in Alabama is lex loci contractus, which provides that "a contract is governed as to its nature, obligation, and validity by the law of the place where it was made." Ex parte Owen, 437 So.2d 476, 481 (Ala.1983) (per curiam). See also Cincinnati Ins. Co., Inc. v. Girod, 570 So.2d 595, 597 (Ala.1990); Donegal Mut. Ins. Co. v. McConnell, 562 So.2d 201 (Ala.1990); Gravley v. Nationwide Mut. Ins. Co., 553 So.2d 52, 53 (Ala.1989); Davis v. Hartford Ins. Co. of Illinois, Inc., 456 So.2d 302, 304 (Ala.1984). Here, the insurance contract was formed in Nebraska. Kruger is a Nebraska corporation with its principal place of business in Nebraska. The policy was issued by Quinn Insurance, Inc. of Nebraska. Therefore, Nebraska law will be applied in interpreting the contract.¹

B. Coverage under bodily injury provisions

Under Nebraska law, an insurance contract "is to be construed as any other contract; if its terms are clear, they are to be applied according to their plain and ordinary meaning." Waylett v. United Services Auto Ass'n, 224 Neb. 741, 401 N.W.2d 160, 163 (1987) (citations omitted). Ambiguity exists in an insurance contract "when a word, phrase, or provision in the instrument has, or is susceptible of, at least two reasonable meanings." Knox v. Cook, 233 Neb. 387, 446 N.W.2d 1, 4 (1989). An insurance policy "must be read in its entirety.... It should be read to avoid ambiguities, if possible, and the language should not be tortured to create them." Howard v. Blue Cross/Blue Shield of Nebraska, 242 Neb. 150, 494 N.W.2d 99, 102 (1993). "Regarding words in an insurance policy, `the language should be considered not in accordance with what the insurer intended the words to mean, but what a reasonable person in the position of the insured would have understood them to mean.'" Decker v. Combined Ins. Co. of America, 244 Neb. 281, 505 N.W.2d 719, 722 (1993) (quoting Safeco Ins. Co. of America v. Husker Aviation, Inc., 211 Neb. 21, 317 N.W.2d 745, 748 (1982)). "In cases of doubt, the insurance policy is to be liberally construed in favor of the insured." Id.

Because there is no Nebraska case addressing the application of a pollution exclusion, the court must look to other jurisdictions for persuasive authority. Kruger's policy contains what is called an "absolute pollution exclusion", that is, it does not contain exceptions for sudden or accidental releases of pollutants. See, e.g., Union Mutual Fire Ins. Co. v. Hatch, 835 F.Supp. 59, 64 (D.N.H.1993); see also Vantage Development Corp., Inc. v. American Env. Tech., 251 N.J.Super. 516, 598 A.2d 948, 952-53 (Law Div.1991) (explaining the difference between absolute and qualified pollution exclusions). In reviewing the extensive litigation on absolute pollution exclusions, one federal court stated that "Courts faced with the absolute exclusion generally have concluded that it is unambiguous and excludes coverage for all claims alleging damage caused by pollutants." City of Salina, Kansas v. Maryland Casualty Co., 856 F.Supp. 1467, 1476 (D.Kan.1994).

USF & G cites numerous cases holding that an absolute exclusion precludes recovery for damage caused by airborne substances emitted during the normal operation of an industrial business. In Hydro Systems, Inc. v. Continental Ins. Co., 929 F.2d 472, 474-476 (1...