Morrow Corp. v. Harleysville Mut. Ins. Co.

• Court: U.S. District Court — Eastern District of Virginia
• Writing for the Court: Ellis
• Citation: Morrow Corp. v. Harleysville Mut. Ins. Co., 110 F.Supp.2d 441 (E.D. Va. 2000)
• Decision Date: 24 August 2000
• Docket Number: No. Civ.A. 99-1782-A.,Civ.A. 99-1782-A.
• Parties: The MORROW CORPORATION, et al., Plaintiffs, v. HARLEYSVILLE MUTUAL INSURANCE CO., et al., Defendants.

110 F.Supp.2d 441

The MORROW CORPORATION, et al., Plaintiffs, v. HARLEYSVILLE MUTUAL INSURANCE CO., et al., Defendants.

No. Civ.A. 99-1782-A.

United States District Court, E.D. Virginia, Alexandria Division.

August 24, 2000.

COPYRIGHT MATERIAL OMITTED

Michael O. Hill, Joseph James Green, Collier, Shannon, Rill & Scott, P.L.L.C., Washington, DC, for plaintiffs.

Richard W. Driscoll, Eccleston and Wolf, Washington, DC, for defendant Sentry.

Edward Harrison Grove, III, Brault, Palmer, Grove, Zimmerman, White & Mims, Fairfax, VA, for defendant Harleysville.

MEMORANDUM OPINION

ELLIS, District Judge.

The matter is before the Court on the motion of defendant Sentry Insurance Co. ("Sentry") to alter or amend this Court's Memorandum Opinion and Order of June 22, 2000 pursuant to Rules 52(b) and 59(e) Fed.R.Civ.P. See Morrow Corp. v. Harleysville Mut. Ins. Co., 101 F.Supp.2d 422 (E.D.Va.2000) ("Morrow I"). Sentry also has asked for a clarification of the holding in Morrow I that Sentry had a duty to defend plaintiffs against a lawsuit seeking to hold plaintiffs liable for pollution damage. Contemporaneous with the filing of this motion, Sentry filed a supporting memorandum of law, and plaintiffs thereafter filed a memorandum in response, to which Sentry, in turn, has responded. Thus, the matter is now ripe for disposition. Oral argument is dispensed with as the facts and legal contentions are adequately presented in the current record and further oral argument would not aid the decisional process.

I.

Although the facts are fully set forth in Morrow I, a brief restatement of the essential facts is nonetheless warranted here.

The record discloses that plaintiffs operated a "plant-on-premises" dry-cleaning business at the Greenbriar Town Shopping Center in Chantilly, Virginia, from May 1986 until 1996. In the course of conducting their dry-cleaning business, plaintiffs used a solvent containing perchloroethylene ("PCE"), a toxic and hazardous chemical that is regulated by the United States Environmental Protection Agency and the Virginia Department of Environmental Quality. In 1996, Greenbriar Limited Partnership ("Greenbriar"), the shopping center operator, conducted a site examination as part of the sale of the shopping center and thereby discovered PCE contamination in the soil and groundwater under the plaintiffs' leased store location, where they operated the dry-cleaning business from May 1986 to May 1992.¹ Greenbriar thereafter sued plaintiffs, inter alia, for damages and injunctive relief requiring plaintiffs to remedy, or to bear the costs of remedying, the alleged PCE pollution damage.² Plaintiffs consequently sought from their insurers, Sentry and Harleysville Mutual Insurance Co. ("Harleysville"), a defense against the suit and indemnification for any losses pursuant to all of their insurance policies. Both declined to defend or indemnify plaintiffs against the Greenbriar claims, citing pollution exclusion clauses contained in the policies as the basis for the refusal. Lacking the resources to defend the Greenbriar suit, plaintiffs settled the case in August 1999.

Plaintiffs brought the instant action against Sentry & Harleysville in November 1999 for declaratory relief and breach of contract arising from the insurers' failure to defend and indemnify plaintiffs against the Greenbriar suit. Plaintiffs then filed a motion for partial summary judgment as to both insurers' duty to defend, and each insurer filed a cross-motion for summary judgment on both the duty to defend and the duty to indemnify. These motions were granted in part and denied in part in Morrow I. In essence, summary judgment was granted for Harleysville on both the duty to defend and the duty to indemnify, and Harleysville was therefore dismissed from this action. Summary judgment, in addition, was granted in favor of plaintiffs on Sentry's duty to defend but was denied on the duty to indemnify, as the factual record was insufficiently developed at that juncture. See id. at 424-26, 429, 435.

The instant motion only involves comprehensive general liability ("CGL") insurance policies issued by Sentry that were in effect from May 1991 through May 1995. Each of these CGL policies provided occurrence-based pollution liability insurance for bodily injury or property damage arising from "the actual, alleged or threatened discharge, dispersal, release or escape of pollutants" under a provision entitled "Dry, Cleaners Additional Coverage."³ Specifically, these policies required an "occurrence" of bodily injury or property damage to trigger coverage, and the policies defined an "occurrence" as "the date on which bodily injury or property damage first manifests itself." The question of when these policies — and Sentry's concomitant duty to defend plaintiffs — are triggered, therefore, turns on when "bodily injury or property damage first manifests itself."

The target of Sentry's motion is the ruling in Morrow I granting summary judgment to plaintiffs on Sentry's duty to defend plaintiffs under the 1991 through 1995 Sentry policies. See id. at 429-35. Specifically, Sentry attacks the ruling that Sentry was obligated to defend plaintiffs against the underlying Greenbriar suit under each of the Sentry policies in effect between 1991 and 1995, because the property damage from the pollution that occurred during each of those years may have first become manifest in each of the years. See id. at 432-33. This ruling, in Sentry's view, is manifestly erroneous and must be altered or amended pursuant to Rule 52(b), Fed.R.Civ.P.⁴ In addition, Sentry seeks a clarification as to whether Sentry, under Morrow I, is obligated to pay the defense costs for claims relating to periods of time in which no applicable policy was in effect. Each of these matters is separately addressed in light of the applicable standard under the Rules, as well as the governing substantive law.

II.

A. Sentry's Request for Clarification

The requested clarification is addressed first, as it is easily laid to rest. Morrow I discusses the issue of apportioning defense costs between Sentry and plaintiffs because Sentry had a duty to defend under some, but not all, of the policies implicated by the underlying complaint. See id. at 429-30. In essence, the majority rule, which Virginia would likely adopt, is that, where there is a reasonable means of prorating the costs of defense, the insured must pay its fair share for the defense of the non-covered risk. See id. And where, as here, the current factual record is insufficiently developed to permit a determination as to whether defense costs may be reasonably apportioned between Sentry and plaintiffs, the specific apportionment issue must await further factual development. See id.

In any event, however, an insurer has a duty to defend the insured against the entire suit, including claims for damages attributable to the non-covered period, regardless of whether the defense costs may be reasonably apportioned between the covered and non-covered periods. See id. at 430 n. 9. Put differently, where the insurer has a duty to defend an insured against part of an underlying suit, the insurer may not mount a defense that is limited to the claims that implicate the periods of coverage and thereby require the insured to provide its own defense for the periods of non-coverage. Rather, because of the insurer's absolute duty to protect the insured's interests, the insurer must provide a defense for the entire claim against the insured. See Insurance Co. of N. Am. v. Forty-Eight Insulations, Inc., 633 F.2d 1212, 1225 n. 25 (6th Cir.1980). This is true even though some of the costs of that defense may ultimately be apportioned to the insured for the periods of non-coverage. This issue is adequately addressed in Morrow I, and no further clarification is needed.

B. Sentry's Motion to Amend or Alter

The second argument raised in Sentry's motion merits more discussion, as it was neither raised by Sentry in the original summary judgment motion nor pressed in subsequent pleadings⁵ and was therefore not addressed in Morrow I. To recapitulate briefly, Sentry chiefly argued on summary judgment that the 1991 through 1995 policies were not implicated by the underlying Greenbriar complaint because the pollution liability insurance in those policies was limited to property damage that first manifested itself in the applicable policy year, whereas the underlying Greenbriar complaint alleged that plaintiffs were aware of PCE contamination as early as 1989, two years before the first policy containing the pollution liability insurance took effect. Thus, went Sentry's principal summary judgment argument, because plaintiffs were aware of the PCE contamination in 1989, the 1991 through 1995 Sentry policies — and Sentry's duty to defend — were not implicated. This argument was rejected in Morrow I on the ground that "[w]hile the damage caused by the PCE contamination began when the first PCE was released, each time additional PCE was released, more property damage occurred. In other words, the property damage caused by the 1991 releases first manifested itself in 1991, as each release occurred." Id. at 433. Now, in the motion at bar, Sentry changes tack and argues that the property damage caused by the PCE contamination "first manifest[ed] itself," not in 1989, but in 1996, when Greenbriar first discovered the contamination, and that, as a result, no duty to defend arose under the 1991 through 1995 policies. This argument, too, fails for the reasons that follow.

It is established in Virginia that the duty to defend is broader than the duty to indemnify. See, e.g., VEPCO v. Northbrook Property & Cas. Ins., 252 Va. 265, 475 S.E.2d 264, 265 (1996). Under Virginia law, the duty to defend arises whenever the complaint against the insured "`alleges facts and circumstances, some of which would, if proved, fall within the risk covered by the policy.'" VEPCO, 475 S.E.2d at...