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

Decision Date22 June 2000
Docket NumberNo. Civ.A. 99-1782-A.,Civ.A. 99-1782-A.
Citation101 F.Supp.2d 422
CourtU.S. District Court — Eastern District of Virginia
PartiesThe MORROW CORPORATION, et al., Plaintiffs, v. HARLEYSVILLE MUTUAL INSURANCE CO., et al., Defendants.

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

Edward Harrison Grove, III, Brault, Palmer, Grove, Zimmerman, White & Mims, Fairfax, VA, Richard W. Driscoll, Eccleston and Wold, Washington, D.C., for defendants.

MEMORANDUM OPINION

ELLIS, District Judge.

This coverage dispute between two insurers and their insureds raises questions on summary judgment concerning (i) the insurers' duty to defend a lawsuit on behalf of their insureds and (ii) their duty to indemnify the insureds for the sums paid to settle the lawsuit.

I.

The essential facts are not in dispute. The record reflects that from May 1986 until May 1992, plaintiffs, Dean and Marilyn Morrow and their corporation, the Morrow Corporation, leased Store No. 8 at the Greenbriar Town Shopping Center in Chantilly, Virginia, at which they operated a "plant-on-premises" dry-cleaning business.1 In 1992, plaintiffs moved their business to another location in the Greenbriar Town Shopping Center, where they continued to operate until 1996, at which time the Greenbriar Town Shopping Center was sold. During this time, plaintiffs had several different insurance policies for their business. Harleysville Mutual Insurance Co. ("Harleysville") insured plaintiffs during their first year of business from May 1986 through May 1987. In May 1987, plaintiffs obtained insurance from Sentry Insurance Co. ("Sentry"). Plaintiffs continued to purchase their insurance from Sentry the remaining time they were in business, although the details of their policies changed several times over the years. All of the policies — the single Harleysville policy and the various Sentry policies — were comprehensive general liability policies with property, liability and crime coverage.

Although similar in this respect, the various policies differed in the terms used to define coverage for damage resulting from pollution. Thus, the single Harleysville policy in effect from May 1986 to May 1987 contained a coverage exclusion for "bodily injury or property damage arising out of the actual or threatened discharge, dispersal, release or escape of pollutants." The two Sentry policies in effect from May 1987 through May 1989 contained an essentially similar exclusion for "bodily injury or property damage arising out of the discharge, dispersal, release, or escape of ... contaminants or pollutants into or upon land, the atmosphere or any water course or body of water." But these policies also included an exception to the pollution exclusion for any "sudden and accidental" discharges or releases of pollutants, which category of discharges were therefore afforded coverage. From May 1989 through 1990 the scope of the pollution coverage reverted to the original 1986-1987 coverage, as the two Sentry policies in effect during this period included an attachment that replaced the previous pollution exclusion clause with an exclusion identical to the one found in the Harleysville policy. Finally, from May 1991 through May 1995, the scope of pollution coverage changed yet again, as the Sentry policies in effect during these years included a provision designed for dry-cleaning businesses, entitled "Pollution Liability Insurance." According to this provision, the policies covered bodily injury or property damage arising from "the actual, alleged or threatened discharge, dispersal, release or escape of pollutants." Excluded from coverage under this provision, however, was "any loss, cost or expense arising from any direction or request that you [the insured] test for, monitor, clean up, remove, contain, treat, detoxify or neutralize pollutants."

In sum, the various insurance policies fall into three essential categories: (i) those containing an "absolute pollution exclusion,"2 namely the single Harleysville policy, and the 1989 and 1990 Sentry policies, (ii) those containing a pollution exclusion with an exception for "sudden and accidental" discharges of pollutants, namely the 1987 and 1988 Sentry policies, and (iii) those containing the pollution liability insurance, namely the 1991 through 1995 Sentry policies.

In conducting their dry-cleaning business, plaintiffs used a solvent containing a chemical known as perchloroethylene ("PCE"), a toxic and hazardous substance. When released into the environment, PCE degrades or breaks down, forming vinyl chloride, another hazardous or toxic chemical. The presence of PCE and its breakdown products is regulated by the United States Environmental Protection Agency ("EPA") and the Virginia Department of Environmental Quality.

In 1996, as part of the sale of the Greenbriar Town Shopping Center, which was owned by the Greenbriar Limited Partnership ("Greenbriar"), a site examination was conducted to determine whether the shopping center, or the soil or groundwater beneath it, was contaminated as a result of any tenant's operations. The examination revealed PCE contamination in the soil and groundwater under the first location of plaintiffs' business, Store No. 8. Pursuant to the shopping center purchase agreement, Greenbriar was required to bear all costs for the inspection and remediation of the PCE contamination at the site.

In November 1998, Greenbriar filed suit against plaintiffs seeking damages and injunctive relief requiring plaintiffs to remedy, or bear the costs of remedying, the PCE contamination. The complaint alleged that through negligence or otherwise, from May 1986 to May 1992, plaintiffs had, knowingly or otherwise, allowed their employees, agents, or others acting on their behalf to spill or otherwise release PCE into the environment, which contaminated the soil and groundwater under and surrounding the leased property.3 In addition, the complaint alleged violations of CERCLA, 42 U.S.C. § 9601 et seq., under which plaintiffs were said to be strictly liable for any harm resulting from environmental releases at their business, provided that there had been at least one documented release at their store. Plaintiffs, who claimed that any contamination resulted from the previous owners' dry-cleaning business, not theirs, sought from defendants a defense and indemnification, pursuant to the various insurance policies. Sentry first requested more information from plaintiffs relating to the facts of Greenbriar's claims, but ultimately both Sentry and Harleysville refused to indemnify, or even defend plaintiffs against the claims, based on the various pollution exclusions in the insurance policies. Because they lacked the resources to defend the Greenbriar suit, plaintiffs ultimately settled the case in August 1999. In the course of defending themselves, plaintiffs incurred attorneys' fees and other costs, as well as the cost of the settlement.

Plaintiffs brought the instant action against defendants in November 1999, stating claims for declaratory relief and breach of contract based on defendants' failure to defend and indemnify them in connection with the Greenbriar suit. Plaintiffs have moved for partial summary judgment only as to defendants' duty to defend them against the Greenbriar lawsuit. Sentry and Harleysville have filed cross-motions for summary judgment on both the duty to defend and the duty to indemnify. These motions, having been fully briefed and argued, are now ripe for disposition.

II.

On a motion for summary judgment, the moving party must demonstrate that "there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Rule 56(c), Fed.R.Civ.P. The facts themselves, and the inferences to be drawn from those facts, must be viewed in the light most favorable to the non-moving party. See Ross v. Communications Satellite Corp., 759 F.2d 355, 364 (4th Cir. 1985). Summary judgment is appropriate when a party "fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Rule 56, Fed.R.Civ.P.; Celotex Corp. v. Catrett, 477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986). These principles govern whether the current factual record is suitable for summary judgment.

III.

The issue presented by plaintiffs' motion is limited to whether defendants, by virtue of their insurance contracts with plaintiffs, had a duty to defend plaintiffs against the Greenbriar lawsuit. Defendants' motion is broader; it seeks a determination as to both the duty to defend and the duty to indemnify. These two duties of insurers are separate responsibilities and the scope of coverage is different for each. See Town Crier, Inc. v. Hume, 721 F.Supp. 99, 101 (E.D.Va.1989). Thus, courts interpreting insurance policies have consistently construed the duty to defend as being broader than the duty to indemnify. See id.; VEPCO v. Northbrook Property & Cas. Ins. Co., 252 Va. 265, 475 S.E.2d 264, 265 (1996). Under Virginia law,4 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 265. Conversely, an insurer is not obligated to defend its insured when "under the allegations of the complaint, it would not be liable under its contract for any recovery therein had." Id. at 266. If it is unclear whether the suit against the insured falls within the ambit of the insurance policy, the insurer's refusal to defend is at its own risk, and if it is later shown that the claim against the insured was covered by the policy, the insurer "is necessarily liable for breach of its covenant to defend." Id. On the other hand, where it appears clear that the insurer would not be...

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