Mraz v. American Universal Ins. Co.

• Decision Date: 01 August 1985
• Docket Number: Civ. No. Y-84-4426.
• Citation: 616 F. Supp. 1173
• Parties: Paul J. MRAZ, et al. v. AMERICAN UNIVERSAL INSURANCE COMPANY, et al.
• Court: U.S. District Court — District of Maryland

616 F. Supp. 1173

Paul J. MRAZ, et al. v. AMERICAN UNIVERSAL INSURANCE COMPANY, et al.

Civ. No. Y-84-4426.

United States District Court, D. Maryland.

August 1, 1985.

COPYRIGHT MATERIAL OMITTED

Thomas R. Kline, Robert S. Faron, Mary Douglas Dick, Brown, Roady & Gold, Washington, D.C., for plaintiff.

Hartman J. Miller, Baltimore, Md., for defendant.

MEMORANDUM

JOSEPH H. YOUNG, District Judge.

This is an action for a declaratory judgment to determine the rights of the parties under a contract for insurance issued by the defendant, Canadian Universal Insurance Company. Galaxy Chemical, Inc., represented by Paul Mraz and Sally Mraz, as directors and trustees of the assets of Galaxy ("Galaxy"), and Paul Mraz individually, have brought this case seeking a declaratory judgment as to coverage for the claims made against them in United States, et al. v. Bissell, et al., Civil No. Y-83-3745, also pending before this Court. Galaxy and Mraz seek a determination of the duty of Canadian Universal Insurance Company to defend them in the Bissell case. In Bissell, they are faced with potential liability in litigation filed by the federal government and the State of Maryland for cleanup of an alleged hazardous waste dump site ("the Leslie site") in North East, Maryland under the provisions of the Comprehensive Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), 42 U.S.C. § 9601, et seq. and the Maryland Code Health and Environmental Article, § 7-218, et seq.

This action was filed in Circuit Court for Cecil County against American Universal Insurance Company on November 14, 1984, and was removed to this Court. On April 3, 1985, the complaint was amended to include Canadian Universal. By stipulation in the pre-trial order, American Universal was dismissed.

A bench trial was conducted on July 10, 1985. At the time, both parties presented evidence and the Court heard argument. Having reviewed the evidence and considered the testimony produced at trial, the Court will now enter judgment in this action. The findings of fact and conclusions of law made herein are in accordance with the provisions of Rule 52, F.R.Civ.P. whether or not specifically identified as such.

Mraz was the founder and president of Galaxy Chemicals, a company engaged in recycling chemical solvents. Galaxy received waste materials from its client companies, recycled those materials into usable solvents and other chemicals, and returned the finished products to the clients. Galaxy produced some residual waste material in the process.

Canadian Universal issued policies to Galaxy providing operations liability coverage for calendar years 1966-1969, for which Galaxy paid premiums. Policies were issued through an agent named Robert Krapf of the Krapf and Kraft Insurance Agency. Defendant does not deny that the policies were written. Those policies also covered Paul Mraz and Sally Mraz, individually, for actions taken within the scope of their responsibilities.

Soon after Galaxy commenced operations, allegations of odors emanating from the plant site began to occur, and there was extensive involvement of the Cecil County Health Department and other state agencies concerning the fumes and possible health hazards from the plant. The allegations of harm began to center on certain drums of material which were stored at the plant before being processed. By 1969, there was such a crescendo of protest that the State entered suit and on September 16, 1970, the plant was declared a public nuisance in the Circuit Court for Cecil County. Also in 1970, a group of eleven citizens from the neighborhood of the plant sued Galaxy, alleging bodily injury occasioned by the noxious odors caused by the plant. Judgment was eventually entered against Galaxy in that suit.

As part of the effort to solve the problems which were the subject of those two actions, Galaxy arranged to dispose of those drums which were the main subject of controversy. The arrangement for the disposal were made with the involvement and cooperation of the state and county health department officials. In August of 1969, drums from the Galaxy Plant were placed on two acres of land in North East, Maryland, known as the Leslie site. The disposal was arranged by Galaxy through its employees Paul Mraz and James Waters, at the direction of, and with the agreement of, Maryland and Cecil County officials. The drums of material, which had been stored at the plant but never processed, were buried in a clay pit on the Leslie property. At that time, Galaxy and health officials thought that the clay would form a natural barrier against any leaking of chemicals from the drums.

Galaxy now claims that immediately upon being dumped, the barrels began leaking into the ground and water in the area and began to cause damage to persons or property at or nearby the Leslie site.

In late 1981 and early 1982, after the passage of CERCLA, the State of Maryland and the Environmental Protection Agency (EPA) investigated the Leslie site and determined that hazardous substances were buried at the site and that those substances had caused or threatened to cause damage to the health of area residents. Based on these findings, EPA and the state removed the buried drums, disposed of contaminated soil, treated contaminated water and took other clean-up action from June through December, 1982.

In 1983, the United States and the State of Maryland filed the Bissell suit against Galaxy and Mraz, seeking to recover under CERCLA which created retroactive liability for clean-up costs against those who caused environmental damage. In Bissell, the state and the United States allege that in 1969 Galaxy and Mraz arranged for or participated in the disposal of hazardous wastes or substances from Galaxy's manufacturing operations. The complaint alleges environmental damage to the Leslie site and the nearby area, and injury to the health of residents near the site who were exposed to or came in contact with alleged hazardous substances. The state and the United States have also sued other potentially responsible parties who apparently used the dump site to recover money that the state and federal governments spent for clean-up. Some of those parties have filed cross-claims and counterclaims against Galaxy and Mraz.

Following receipt of the complaint in Bissell, Mraz notified Canadian of the suit, and requested payment of legal fees and expenses, and indemnification of any potential liability that he and Galaxy may face, under the policy issued in 1969. Canadian declined to defend or indemnify Galaxy under that policy. Galaxy and Mraz then filed this action for declaratory judgment.

In general, an insurer has a duty to defend an insured if there is a claim alleged against the insured which is potentially within the policy coverage. Brohawn v. Transamerica Insurance Co., 276 Md. 396, 347 A.2d 842 (1975). If the allegations of the complaint against the insured are clearly outside of the scope of coverage, however, there is no duty to defend. Minnick's, Inc. v. Reliance Insurance Co., 47 Md.App. 329, 422 A.2d 1028 (1980); Harleysville Mutual Cas. Co. v. Harris & Brooks, Inc., 248 Md. 148, 235 A.2d 556 (1967).

Plaintiffs here allege that Canadian has a duty to defend them in the Bissell suit, because the policies issued by Canadian provide coverage for any liability arising out of the allegations of the Bissell complaint. Plaintiffs argue that the general liability policy issued by Canadian in 1969 provided coverage for the operations of Galaxy, that they cover this type of injury and property damage which occurred within the policy period, and that all prerequisites for coverage have been met. Defendant counters that there has been no "occurrence" within the meaning of the policy, no damage or loss within the policy period, and that it has no potential liability because of numerous exclusions within the policy.

Canadian has a duty to defendant Mraz and Galaxy in the Bissell action if there are allegations in that action that fall potentially within the terms of the Canadian policy. Galaxy and Mraz allege that the United States or Maryland may prove, in the Bissell action, that an occurrence in 1969 (the last Canadian policy expired December 31, 1969) caused bodily injury or property damage within the policy triggering coverage. Specifically, the allegations in Bissell are: (1) that hazardous substances had in the past been released and threatened to continue to be released from the Leslie site into the air, water, and soil, before the site was cleaned up, (2) that those releases resulted in strong odors in the air and discolored run-off in a nearby creek, (3) that they imposed a possible health threat to residents, and (4) that Galaxy was at least partially responsible. It is necessary, therefore, to determine whether any of these allegations state claims which are potentially within the coverage of that 1969 policy.

The 1969 policy issued by Canadian provided general liability insurance coverage for the operations of Galaxy. It covered personal injury or property damage caused by an "occurrence" within the policy period. The policy contained various exclusions, which excluded coverage for completed operations or products liability, as well as others on which Canadian now seeks to rely. Under the Canadian policies an "occurrence" means an "accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage neither expected nor intended from the standpoint of the insured." "Property damage" is defined as "injury to or destruction of tangible property." The last Canadian policy was issued in 1969 and expired on December 31, 1969.

In this case, Galaxy and Mraz assert that the 1969 dumping and the resulting damage constitute an "occurrence" within the meaning of the policy. The occurrence provision and similar policy language has been interpreted to apply to...