Liberty Mut. Ins. Co. v. Fag Bearings Corp.

• Decision Date: 10 July 2003
• Docket Number: No. 01-3522.,01-3522.
• Citation: 335 F.3d 752
• Parties: LIBERTY MUTUAL INSURANCE COMPANY, Appellee, v. FAG BEARINGS CORPORATION, Appellant.
• Court: U.S. Court of Appeals — Eighth Circuit

335 F.3d 752

LIBERTY MUTUAL INSURANCE COMPANY, Appellee, v. FAG BEARINGS CORPORATION, Appellant.

No. 01-3522.

United States Court of Appeals, Eighth Circuit.

Submitted: September 9, 2002.

Filed: July 10, 2003.

Rehearing and Rehearing En Banc Denied: August 29, 2003.

COPYRIGHT MATERIAL OMITTED

Counsel who presented argument on behalf of the appellant was Mr. Thomas C. Walsh of St. Louis, MO. Also appearing on appellant's brief were Elizabeth C. Carver of St. Louis, MO. and Howard T. Weir, III, and John E. Failla of New York, NY.

Counsel who presented argument on behalf of the appellee was Stephen T. Murray of Boston, MA. Also appearing on appellee's brief were Justin S. Kudler of Boston, MA and Vincent F. O'Flaherty of Kansas City, MO.

Before HANSEN,¹ Chief Judge, LAY and MURPHY, Circuit Judges.

HANSEN, Circuit Judge.

Liberty Mutual Insurance Company (Liberty), a general liability insurer, filed a declaratory judgment action seeking a determination that it had no duty to defend or indemnify one of its policyholders, FAG Bearings Corporation (FAG), in various class actions and administrative proceedings arising out of environmental contamination at FAG's Joplin, Missouri plant. The district court² granted Liberty summary judgment, finding that FAG was precluded from relitigating the relevant issues regarding coverage because they had been decided in an earlier action between Liberty and FAG, and alternatively, that the liability insurance policy did not cover the alleged acts potentially giving rise to FAG's liability in the underlying suits. Furthermore, the district court concluded that the insurance policy did not create a duty to defend in administrative proceedings. For the reasons stated below, we affirm.

I. BACKGROUND

This is the second time these two parties have appeared in a case before this court.³ In 1994, Liberty brought a declaratory judgment action (LM I), seeking to determine its obligation under a liability policy to defend and indemnify FAG in two civil actions, Lewis v. FAG Bearings Corp. ("the Lewis action") and Thomas v. FAG Bearings Corp. ("the Moretz Action"), and two administrative proceedings involving the EPA and the Missouri Department of Natural Resources (MDNR). The district court in LM I ("the LM I court") found that recurring malfunctions in FAG's trichloroethylene (TCE) reclamation system at its Joplin plant caused airborne emissions that led to the groundwater contamination, property damage, and bodily injury giving rise to the underlying actions. See Liberty Mut. Ins. Co. v. FAG Bearings Corp., No. 94-0241, slip op. at 1-3, 9-10 (W.D.Mo. May 14, 1996). In granting Liberty's motion for summary judgment, the LM I court found that these releases fell within the pollution exclusion clause in FAG's liability insurance policy because they were not "sudden and accidental."⁴ Id. at 9-10. The LM I court noted in its summary judgment order and in a subsequent order denying FAG's motion to alter and amend judgment, that its ruling in the case did not determine the parties' rights in other pending or future actions.

FAG filed a Rule 60(b) motion for relief from judgment in LM I on the basis of "newly discovered evidence," specifically, expert reports used against it in a related contribution action (Gulf States) showing that FAG released TCE in a number of ways other than through airborne emissions. The court in Gulf States, notably the same court as that in LM I, found that in addition to the faulty vapor recovery system, FAG lost between 11,000 and 24,000 gallons of TCE through pump malfunctions, "still bottoms" generated during distillation of TCE, collection tank overflows, leaking barrels, dumping, incidental use by employees, and seal leaks in the vault. See FAG Bearings Corp. v. Gulf States Paper Co., et al., 1998 WL 919115, slip op. at 6-27 (W.D.Mo. Sept. 30, 1998). The LM I court denied FAG's motion, finding that FAG had not exercised due diligence in discovering the other sources of release, that the evidence was merely cumulative, and that FAG did not even assert that any of the new sources of contamination were "sudden and accidental."

On appeal, we affirmed the LM I court's judgment. See 153 F.3d at 922. We held that FAG had failed to put forward evidence creating a genuine issue of material fact as to whether there were releases of TCE other than the vapor emissions that were "sudden and accidental." Id. We noted that although the complaints in the underlying suits alleged other methods of release, the undisputed evidence in the Moretz action related only to vapor releases through the TCE reclamation system, and FAG failed to put forward evidence to create an issue to the contrary. In affirming the LM I court's denial of FAG's Rule 60(b) motion, we agreed that FAG had failed to exercise due diligence in discovering the new evidence. Id. at 924.

In 1999, Liberty filed the complaint in this action (LM II), seeking to determine its obligation to defend and indemnify FAG in two civil actions, the Lewis action and Black v. FAG Bearings Corp., and the administrative proceeding involving the EPA. FAG filed a counterclaim, seeking reimbursement for defense costs and indemnification in these actions as well as the MDNR investigation. At some point after the complaint was filed, the parties amended their pleadings to add the case of Hughes v. FAG Bearings Corp. to the list of underlying suits for which FAG was seeking coverage.

The Lewis action was filed in 1992 and resulted in a jury verdict of $716,000 in compensatory damages and $1,250,000 in punitive damages. The punitives were set aside by the trial court. In September 1999, the Missouri Court of Appeals affirmed the judgment which awarded compensatory damages to Lewis and which abrogated the jury's award of punitive damages. See Lewis, 5 S.W.3d at 588. The evidence in Lewis was based almost entirely on FAG's allegedly improper TCE storage and disposal practices during the years it utilized TCE in it operations. Id. at 582-83. The Black action was filed in 1996 and settled in 2000 after the discovery of new scientific evidence. The Hughes action was filed in 1999 and is still pending in Missouri state court.

The MDNR began its investigation of the Joplin facility in 1992. After determining that FAG was a "potentially responsible party" for the groundwater contamination, the MDNR demanded that FAG remediate the contamination and fund a new public drinking water system. In 1998, FAG entered an Abatement Order on Consent with the MDNR, requiring FAG to conduct an investigation and remediation at the Joplin facility. In September 1991, the EPA sent an information request to FAG regarding the Joplin site. In January 1998, the EPA simultaneously filed a complaint seeking reimbursement for response and removal costs at the Joplin facility, and an agreed upon consent decree under which FAG must pay $223,057.

FAG alleges for the first time in LM II that the contamination giving rise to the underlying claims resulted when a plumbing contractor working for FAG cut an underground, abandoned pipeline on FAG's property in 1983 or 1984. The pipeline was originally used to transport TCE and was allegedly drained and capped in 1982 when FAG stopped using the chemical. Some months later, FAG directed that the pipe be cut for use in a new reverse-osmosis system, at which time a clear liquid flowed from the pipe. The only FAG employee to witness this event believed that the liquid was water and directed the plumbing contractor to continue his work. Varying testimony indicates that the liquid continued to flow into the ground for at least thirty minutes, and for up to two hours after the cut. Later evidence indicated that the liquid was actually TCE that had remained in the pipe after it was capped in 1982.

According to FAG, the first evidence of the pipeline cut was discovered in 2000 by its adversaries in other litigation. FAG alleges that the concentration of TCE in the pipeline trench is 10,000 times greater than any other location at its Joplin facility. Based on the opinions of its experts, FAG asserts that the TCE released from the pipe cut was the primary, if not the exclusive, source of contamination in the surrounding groundwater, and that its discovery proves that the conclusions of the LM I court as to the source of contamination were erroneous. FAG argues that the release from the pipe was "sudden and accidental" and, therefore, covered under the Liberty policy.

In an order granting partial summary judgment in LM II, the district court found that the decision in LM I precludes FAG from relitigating the issue of Liberty's obligation to defend and indemnify FAG in other actions based on TCE releases. The court, on its own initiative, also went on to find that even if it was to consider evidence of the pipe cut as a source of TCE contamination, releases from the cut were not "sudden and accidental" and, therefore, fall outside the policy's coverage. Finally, the court determined that Liberty owes no duty to defend or indemnify FAG in the administrative proceedings, because they are not "suits" within the coverage of the insurance policy. FAG appeals the judgment, challenging the district court's application of issue preclusion, its finding that releases from the pipe cut were not "sudden and accidental," and its conclusion that the administrative proceedings are not "suits."

II. DISCUSSION

In reviewing the district court's grant of summary judgment, we review de novo its conclusions of law, see Tillery v. Hoffman Enclosures, Inc., 280 F.3d 1192, 1196 (8th Cir.2002), including the availability of issue preclusion, see Boudreau v. Wal-Mart Stores, Inc., 249 F.3d 715, 719 (8th Cir.2001) ("A trial court's determination as to whether the legal prerequisites for issue preclusion have been met on the facts before it is a mixed question of law and fact, subject to de novo review by this court."). Therefore, if issue preclusion...