A.Y. McDonald Industries, Inc. v. Insurance Co. of North America

Decision Date18 September 1991
Docket NumberNo. 89-1722,89-1722
PartiesA.Y. McDONALD INDUSTRIES, INC., Plaintiff, v. INSURANCE COMPANY of NORTH AMERICA, The American Insurance Company, Hartford Accident and Indemnity Company, The Aetna Casualty and Surety Company, American Employers Insurance Company, Employers Reinsurance Corporation, Allstate Insurance Company, Employers Insurance Company of Wausau, National Surety Corporation, Puritan Insurance Company, Old Republic Insurance Company, Twin City Fire Insurance Company, The Home Insurance Company, and The Cincinnati Insurance Company, Defendants.
CourtIowa Supreme Court

William C. Fuerste, Stephen J. Juergens, and Gregg L. Owens of Fuerste, Carew, Coyle, Juergens & Sudmeier, Dubuque, for plaintiff A.Y. McDonald Industries, Inc.

Paul R. Koepff, Kathleen A. Gallagher, and Michael P. Murphy of Mudge, Rose, Guthrie, Alexander & Ferdon, New York, New York, and Robert M. Jilek of Simmons, Perrine, Albright & Ellwood, Cedar Rapids, for defendant Ins. Co. of North America.

Daniel A. Bartoldus, Lawrence A. Levy, and Alyse Walker of Rivkin, Radler, Bayh, Hart & Kremer, Uniondale, N.Y., and Greg A. Egbers of Betty, Neuman & McMahon, Davenport, for defendants The American Ins. Co. and Nat. Sur. Corp.

Paul L. Gingras and Richard M. Hagstrom of Zelle & Larson, Minneapolis, Minnesota, and Richard P. Moore of Moyer & Bergman, Cedar Rapids, for defendant Employers Ins. of Wausau.

Daniel G. Litchfield and Gail D. Zwemke of Burditt, Bowles & Radzius, Chicago, Ill., and John M. Wharton of Peddicord & Wharton, Des Moines, and Terry J. Abernathy of Pickens, Barnes & Abernathy, Cedar Rapids, and William C. Davidson and Carole J. Anderson of Lane & Waterman, Davenport, for defendants The Aetna Cas. and Sur. Co., The Cincinnati Ins. Co., Employers Reinsurance Corp. and American Employers Ins. Co.

Susan Allender, Gen. Counsel, and Diane Munns, Deputy Gen. Counsel, for amicus curiae Iowa Utilities Bd.

Roger L. Lande, John S. Gosma, and David J. Meloy of Stanley, Rehling, Lande & Van Der Kamp, Davenport, and Peter C. Condron, Michel Y. Horton, and Paul A. Zevnik of Kaye, Scholer, Fierman, Hays & Handler, Washington, D.C., for amici curiae City of Clinton, Iowa, Iowa Southern Utilities Co., Winnebago Industries, Inc., Quantum Chemical Corp., Getty Chemical Co., Hon Industries, Inc., and Grain Processing Corp.

Mark E. Schantz of Dickinson, Throckmorton, Parker, Mannheimer & Raife, Des Moines, and Thomas W. Brunner, Marilyn E. Kerst, and Frederick S. Ansell of Wiley, Rein & Fielding, Washington, D.C., for amici curiae Employers Mut. Cas. Co., Hawkeye-Security Ins. Co., United Sec. Ins. Co., and Ins. Environmental Litigation Ass'n.

Douglas Gross of Brown, Winick, Graves, Donnelly, Baskerville & Schoenebaum, Des Moines, for amici curiae Iowa Power, Inc., Iowa Elec. Light & Power, Interstate Power Co., Iowa-Illinois Gas &amp Mark A. Critelli of Comito & Capps, West Des Moines, and John B. Haarlow, Richard E. Mueller, and Diane I. Jennings of Lord, Bissell & Brook, Chicago, Ill., for amicus curiae John Richard Ludbrook Youell (a Lloyd's of London underwriter).

Elec. Co., United Cities Gas Co., and Peoples Natural Gas Co.

Thomas J. Miller, Atty. Gen., Elizabeth M. Osenbaugh, Deputy Atty. Gen., and John P. Sarcone, Asst. Atty. Gen., for amicus curiae State of Iowa.

Considered en banc.

LAVORATO, Justice.

This case presents certified questions from the federal district court for the northern district of Iowa. See Iowa Code § 684A (1991); Iowa R.App.P. 451-61. The underlying action arises out of environmental contamination claims asserted by a federal governmental agency against the plaintiff A.Y. McDonald Industries, Inc. (A.Y. McDonald). A.Y. McDonald contends that because of these claims it was forced to incur, and will incur in the future, certain costs. A.Y. McDonald sought from the defendants a recovery of these costs as well as a civil penalty assessed against it. The defendants are various insurance companies that had insured A.Y. McDonald with comprehensive general liability (CGL) policies over a period of years.

After the defendants refused to defend and indemnify A.Y. McDonald, the company sued them in the Iowa district court. In this suit A.Y. McDonald sought a declaration as to the scope of coverage afforded by the CGL policies and whether the defendants had a duty to defend the company.

The case was removed to the United States District Court for the Northern District of Iowa, Eastern Division.

Each defendant had either provided CGL or umbrella and excess insurance to A.Y. McDonald at some time between May 1, 1972, and October 31, 1986.

The defendants allegedly providing CGL policies between 1975 and 1986 were:

Insurance Company of North America,

The American Insurance Company,

Hartford Accident and Indemnity Company,

The Aetna Casualty and Surety Company.

Apparently the insurers providing CGL coverage between 1972 and 1975 were unknown at the time the petition was filed. But on May 16, 1988, A.Y. McDonald amended its petition to add Employers Insurance Company of Wausau (Wausau). The amendment alleged that Wausau had provided A.Y. McDonald with CGL coverage between January 1, 1949, and January 1, 1968.

The defendants allegedly providing umbrella and excess coverage between 1972 and 1986 included:

American Employers Insurance Company,

Employers Reinsurance Corporation,

Allstate Insurance Company,

National Surety Corporation,

Puritan Insurance Company,

Old Republic Insurance Company,

Twin City Fire Insurance Company,

The Home Insurance Company,

The Cincinnati Insurance Company.

Several of the defendants filed motions for summary judgment on the coverage and duty to defend issues. The federal district court entered an order, making certain factual findings. However, the court reserved ruling on the motions pending certification of the coverage and duty to defend questions.

I. The Facts.

In its certification order the federal district court made the following findings of fact, which are essentially undisputed. From about 1949 to October 31, 1983, A.Y. McDonald manufactured brass valves in its brass foundry in Dubuque, Iowa. Any sand remaining after the completion of the process was dumped on the foundry site. Mixed in with the sand was a residue of brass. Lead is a component of brass residue.

On December 6, 1984, the United States Environmental Protection Agency (EPA) served A.Y. McDonald with a complaint, compliance order, and notice of opportunity for hearing. These documents were served pursuant to section 3008 of the Resource Conservation and Recovery Act of 1976 (RCRA), Pub.L. No. 94-580, 90 Stat. 2795 (now codified as amended at 42 U.S.C. § 6928 (1988)).

The matter went to hearing before an administrative law judge (ALJ) who issued an "Initial Decision" on April 24, 1986. The ALJ found that A.Y. McDonald had violated RCRA and imposed a civil penalty against the company. In addition the ALJ required A.Y. McDonald to submit a closure and postclosure plan.

A.Y. McDonald appealed this decision to the administrator of the EPA.

On July 23, 1987, the EPA issued its "Final Decision." The EPA generally adopted the ALJ's "Initial Decision," found that A.Y. McDonald had violated RCRA, and assessed a civil penalty against the company. In addition, the EPA required A.Y. McDonald to submit a closure and postclosure plan and a groundwater assessment plan as well as requiring the company to fully implement these plans.

On August 19, 1987, A.Y. McDonald, the Iowa department of transportation (IDOT), 1 and the EPA entered into a consent order pursuant to section 106 of the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA). See 42 U.S.C. § 9601, et seq., as amended by the Superfund Amendments and Reauthorization Act of 1986. The consent order required A.Y. McDonald to (1) design and construct a clay cap over a specified portion of the property; (2) expand its groundwater monitoring system; and (3) develop and implement a postclosure plan for a period of thirty years.

II. The Certified Questions.

In its certification order the federal district court certified the following three questions to us:

1. Does the language "all sums which the insured shall become legally obligated to pay as damages because of ... property damage" or similar language as used in the policies issued to plaintiff by defendants The Aetna Casualty and Surety Company, American Insurance Company and National Surety Corporation (collectively "FFIC") and Insurance Company of North America include coverage for amounts expended or paid by plaintiff in order to comply with the terms of the EPA's decision issued July 23, 1987, pursuant to RCRA, and to comply with the terms of the consent order entered into on August 19, 1987, by plaintiff, the EPA and IDOT pursuant to CERCLA? If so, do these words encompass all or only part of such amounts expended or paid?

2. Does the language contained in the policies issued to plaintiff by American Employers Insurance Company and Employers Reinsurance Corporation include such coverage as outlined in Question 1:

I. COVERAGES: To indemnify the Insured for all sums which the Insured shall be obligated to pay by reason of the liability imposed upon him by law or liability assumed by him under contract or agreement for damages, and expenses, all as included in the definition of "ultimate net loss", ...

American Employers Insurance Company policies.

SECTION I

COVERAGE. The Corporation hereby agrees to indemnify the insured against such ultimate net loss in excess of the insured's primary liability 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 an occurrence anywhere in the world.

Employers Reinsurance Corporation policies.

3. Did Insurance Company of North...

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