Michigan Chemical Corp. v. Travelers Indem. Co.

• Decision Date: 13 January 1982
• Docket Number: No. G76-96 CA5.,G76-96 CA5.
• Parties: MICHIGAN CHEMICAL CORPORATION, Plaintiff, and American Mutual Reinsurance Company, Plaintiff-Intervenor, v. The TRAVELERS INDEMNITY COMPANY, et. al., Defendants, and AMERICAN HOME ASSURANCE COMPANY, Principal Defendant and Third-Party Plaintiff, v. MIDLAND INSURANCE COMPANY, Third-Party Defendant.
• Court: U.S. District Court — Western District of Michigan

530 F. Supp. 147

MICHIGAN CHEMICAL CORPORATION, Plaintiff, and American Mutual Reinsurance Company, Plaintiff-Intervenor, v. The TRAVELERS INDEMNITY COMPANY, et. al., Defendants, and AMERICAN HOME ASSURANCE COMPANY, Principal Defendant and Third-Party Plaintiff, v. MIDLAND INSURANCE COMPANY, Third-Party Defendant.

No. G76-96 CA5.

United States District Court, W. D. Michigan, S. D.

January 13, 1982.

Thomas J. McNamara, Warner, Norcross & Judd, Grand Rapids, Mich., for plaintiff.

David M. Tyler, Tyler & Canham, Detroit, Mich., William G. Reamon, Law Offices of William G. Reamon, P. C., Grand Rapids, Mich., for American Home Assurance Co.

Dale W. Rhoades, Rhoades, McKee & Boer, Grand Rapids, Mich., John M. Briggs, III, Parmenter, Forsythe & Rude, Muskegon, Mich., Donald M. Haskell and Michael J. Sehr, Haskell & Perrin, Chicago, Ill., for American Mut. Reinsurance Co.

John R. Caffrey, James T. Ferrini and Thomas Burke, Clausen, Miller, Gorman, Caffrey & Witous, Chicago, Ill., Charles N. Dewey, Jr., Dilley, Dewey & Waddell, Grand Rapids, Mich., for Ins. Co. of North America.

C. Barry Montgomery, Jacobs, Williams & Montgomery, Chicago, Ill., for Midland Ins. Co.

Robert J. Eleveld, Varnum, Riddering, Wierengo, & Christenson, Grand Rapids, Mich., Thomas J. Weithers, Hinshaw, Culbertson, Moelmann, Hoban & Fuller, Chicago, Ill., for Aetna Casualty & Surety.

OPINION

BENJAMIN F. GIBSON, District Judge.

This is a declaratory judgment action to determine the extent of insurance coverage available to Michigan Chemical Corporation to pay claims brought against it by farmers and others who have sustained damage as a result of the spread of the toxin polybrominated bipheny (PBB) throughout Michigan. Literally hundreds of such claims have been brought, and over $28 million has already been paid by the insurance companies. Presently before the Court are motions for summary judgment filed by all the parties, although Michigan Chemical seeks only a partial summary judgment.

The claimants in the lawsuits brought against Michigan Chemical contend that they were exposed to PBB in 1973 and 1974 through the wrongful conduct of Michigan Chemical. American Home Assurance Company ("American Home") has presented voluminous documentation that such exposure was due to a single misshipment by Michigan Chemical in early May of 1973. This documentation relating to the PBB mix-up includes a good deal of evidence arising out of the FDA's investigation, which one official described as follows: "Never in the history of the Food and Drug Administration has there been an investigation of the magnitude or complexity of the PBB matter." (Deposition of Alan G. Hoeting, District Director of FDA).

The evidence indicates that during a period in early 1973 Michigan Chemical was producing and distributing both a magnesium-oxide-based feed supplement (MgO), and a PBB-based flame retardant, in nearly identical brown fifty-pound bags. The only difference between the bags was the lettering of the stenciled trade names — "Nutrimaster" and "Firemaster." It appears uncontroverted that on or about May 2, 1973, Michigan Chemical accidentally shipped PBB rather than MgO to Farm Bureau Services, which then mixed it with dairy feed. The feed was sold to farmers who soon thereafter began to complain about unpalatability and decreased milk production. Michigan Chemical claims that it can, if necessary, present evidence of more than one such misshipment; the insurers dispute that claim.

The liability indemnity coverage purchased by Michigan Chemical for the period in which these events took place involves several insurance companies. Travelers Indemnity Company ("Travelers") provided the primary insurance coverage of $1 million per "occurrence" subject to an annual aggregate limit of $1 million for each of bodily injury and property damage. In the event of losses above these limits, several layers of excess insurance provided coverage. The first excess layer involved underwriters at Lloyd's, London ("Lloyds"), which covered an additional $2 million per occurrence, but subject to an annual aggregate limit of $2 million. American Home would pay the next $15 million of any loss, following all the terms and conditions of the Lloyds policy. Aetna Casualty and Surety Company ("Aetna") contracted to share on an equal basis with Insurance Company of North America ("INA") any additional liability up to $10 million per occurrence with an annual aggregate limit of $10 million. Aetna adopted the provisions of the Lloyds policy, while INA adopted those of the Travelers policy, with certain exceptions not relevant here. Thus, there was coverage in a total amount of $28 million per occurrence.

A portion of this coverage was "reinsured" — i.e., the original insurer purchased a policy from another insurance company under which the latter assumed the liability of the original insurer to Michigan Chemical. American Mutual Reinsurance Company ("Amreco"), the plaintiff-intervenor in this case, reinsured Midland Insurance Company, which had reinsured American Home for a portion of its liability.

As noted above, the insurers have each paid Michigan Chemical an amount equal to their single-occurrence limits, for a total of $28 million. In addition, Travelers and Lloyds have paid a second time, amounts equal to their annual aggregate limits (a total of $3 million excluding deductibles). They have therefore been voluntarily dismissed from this action by the plaintiff.

It is important to understand that in every instance in this case, the single-occurrence limit of liability is equal to the annual aggregate limit of liability. Thus, the question presented by the motions is not simply whether there was more than one "occurrence." The ultimate question is whether there were occurrences in more than one policy year. If so, then Michigan Chemical is entitled to an additional $25 million of insurance coverage from the remaining parties in this case for each such additional policy year.

The key policy provision is the definition of "occurrence." The Lloyds policy, applicable to American Home, Aetna, and Amreco, states:

The term "Occurrence" wherever used herein shall mean an accident or a happening or event or a continuous or repeated exposure to conditions which unexpectedly and unintentionally results in personal injury, property damage or advertising liability during the policy period. All such exposure to substantially the same general conditions existing at or emanating from one premises location shall be deemed one occurrence.

The Travelers policy, applicable to INA, is substantially similar:

"Occurrence" means as respects property damage (1) an accident or (2) continuous or repeated exposure to conditions which results in injury to or destruction of tangible property, including consequential loss resulting therefrom, while this agreement is in effect. All damages arising out of such exposure to substantially the same general conditions shall be considered as arising out of one occurrence.

Michigan Chemical seeks to establish occurrences in more than one policy year by contending that the occurrence in these circumstances was the exposure of livestock to PBB. Such exposure apparently took place many times on hundreds of farms over more than one year. Amreco asks the Court to find that the relevant occurrence took place when the damage was manifested at some later time. The insurers other than Amreco seek to have the Court declare that there was only one occurrence. They claim that either the "accident" was the misshipment, of which there was only one in May, 1973, or the PBB incident was an "exposure to conditions" which is deemed to be one occurrence by the "unifying directive" contained in the second sentence of the definition. Michigan Chemical and Amreco seek only a partial summary judgment in that they wish the Court to merely construe the policy definition of occurrence, allowing them to subsequently focus their efforts on evidence relating to the relevant event — misshipment, exposure, or manifestation of damage — but leaving the determination of how many such events took place until later.¹

A careful reading of the definitions of "occurrence" used in these policies discloses two elements. The first is an accident (or a happening or event) or a continuous or repeated exposure to conditions. The second is property damage resulting during the policy period (while the agreement is in effect) from the accident or exposure to conditions. The parties apparently do not dispute that the PBB incident was unexpected and unintentional as required in the Lloyds definition. Nor does there appear to be disagreement over the property-damage nature of the underlying claims. Thus, there does not appear to be any significant difference in the effect of these two alternative formulations.²

American Home and some of the other insurers contend that the "accident" which constituted the occurrence in these circumstances was the misshipment. They argue that the policy mandates a focus upon the causal event, the negligent act of the insured. In support they claim that the prevailing judicial authority is of the view that a "per accident" or "per occurrence" clause is to be construed on the basis of the cause of the accident rather than its effect, citing an annotation at 55 A.L.R.2d 1300 (1957) and a number of cases involving fires and collisions. In one somewhat factually similar case, Maurice Pincoffs Company v. Saint Paul Fire and Marine Insurance Company, 447 F.2d 204 (5th Cir. 1971), it was held that the number of "occurrences" involved in a distribution of contaminated bird seed depended on the number of events or incidents for which the insured was liable. Since it was the sale of the contaminated seed for which the insured was liable, and there had been eight sales, there were eight occurrences. In this case, it is claimed that there was a single negligent misshipment which was the...