National Union Fire Ins. Co. v. Terra Industries, C01-4091-MWB.
| Decision Date | 16 August 2002 |
| Docket Number | No. C01-4091-MWB.,C01-4091-MWB. |
| Citation | 216 F.Supp.2d 899 |
| Parties | NATIONAL UNION FIRE INSURANCE COMPANY OF PITTSBURGH, P.A., Plaintiff, v. TERRA INDUSTRIES, INC. and Terra Nitrogen (UK) Limited, Defendants. |
| Court | U.S. District Court — Northern District of Iowa |
Hayward L. Draper, John F. Lorentzen, Nyemaster Goode Voights West Hansell & O'Brien, PC, Des Moines, IA, Eric Portuguese, Lester, Schwab, Katz & Dwyer, New York City, for Plaintiff.
Gregg E. Williams, Jeff W. Wright, Heidman, Redmond, Fredregill, Patterson, Plaza & Dykstra LLP, Sioux City, IA, Andrew R. Running, Thomas L. Campbell, Kirkland & Ellis, Chicago, IL, for Defendants.
Plaintiff National Union Fire Insurance Company of Pittsburgh, P.A. ("National Union") brings this action for declaratory judgment against its insureds Terra Industries, Inc. ("Terra Industries") and Terra Nitrogen Limited ("Terra Nitrogen") (collectively "Terra" unless otherwise indicated) for a declaration that it has no obligation under a commercial umbrella insurance policy issued by it to indemnify Terra for claims pending in English courts over a benzene contaminated carbon dioxide product sold by Terra Nitrogen in the United Kingdom.
Plaintiff National Union filed its complaint in this case on August 16, 2001. On August 31, 2001, defendant Terra filed its answer and a counterclaim in which it asserts claims for breach of contract and declaratory judgment against National Union. Specifically, Terra asserts that National Union has breached a commercial umbrella insurance policy issued by it by failing to pay a judgment entered in an English Court against Terra resulting from the sale of a benzene contaminated carbon dioxide product in Great Britain. Terra also seeks a declaration that National Union has an obligation under the umbrella policy to defend Terra against current and future benzene claims and lawsuits, to fund the costs of any appeals associated with the defense of the benzene claims and to indemnify Terra for all current and any future benzene claims in English courts.
On January 16, 2002, Terra filed a motion for summary judgment. On February 19, 2002, National Union filed a cross-motion for summary judgment. The parties subsequently filed their respective resistances to the other's motion.
Pursuant to the parties' requests, the court held oral arguments on the parties' respective cross-motions for summary judgment on July 31, 2002. At the oral arguments, plaintiff National Union was represented by John F. Lorentzen and Stephanie L. Marett of Nyemaster, Goode, Voights, West, Hansell & O'Brien, P.C., Des Moines, Iowa, and Eric A. Portuguese of Lester, Schwab, Katz & Dwyer, New York, New York. Defendant Terra was represented by Andrew R. Running of Kirkland & Ellis, Chicago, Illinois, and Jeff W. Wright of Heidman, Redmond, Fredregill, Patterson, Plaza, Dykstra & Prahl, L.L.P., Sioux City, Iowa. The parties have filed thorough and extensive briefs in support of their respective positions. Counsel were exceptionally well prepared for oral argument. The oral arguments were spirited and were of substantial assistance to the court in resolving these difficult issues.
The court turns first to a discussion of the undisputed facts as shown by the record, then to the standards applicable to motions for summary judgment and, finally, to the legal analysis of whether either of the parties are entitled to summary judgment on any of the claims at issue in this litigation.
The following facts are undisputed. National Union is a Pennsylvania corporation with its principal place of business in New York. National Union is authorized to transact the business of insurance in Iowa. Terra Industries is a Maryland corporation with its principal place of business in Iowa. Terra Industries is a manufacturer of fertilizer, nitrogen products and methanol. Terra Nitrogen is an indirect wholly-owned subsidiary of Terra Industries, doing business in the United Kingdom. Terra Nitrogen produces fertilizer in the United Kingdom. A by-product of Terra Nitrogen's fertilizer production is carbon dioxide, which Terra sells for a variety of uses, including the making of beverages.
National Union issued to Terra Industries a commercial umbrella liability insurance policy, policy number BE9325998 ("the National Union Policy"). The policy covered the period of July 1, 1997, through July 1, 2000. Terra has paid more than $3,200,000 in consideration for issuance of the National Union Policy. The National Union Policy covers Terra Nitrogen as a subsidiary of Terra Industries. The National Union Policy lists Terra Industries's address as Sioux City, Iowa, its principal place of business. Approximately twenty-five percent of Terra Industries's sales and production occur in England.
The National Union Policy provides coverage for, among other things, property damage and bodily injury as those terms are defined in the National Union Policy. Specifically, the National Union Policy provides:
We will pay on behalf of the Insured those sums in excess of the Retained Limit that the Insured becomes legally obligated to pay by reason of liability imposed by law or assumed by the Insured under an Insured Contract because of Bodily Injury, Property Damage, Personal Injury or Advertising injury that takes place during the Policy Period and is caused by an Occurrence happening anywhere in the world.
Terra App. Tab 4 at A-100.
The National Union Policy defines "property damage" as follows:
1. Physical injury to tangible property, including all resulting loss of use of that property. All such loss of use shall be deemed to occur at the time of the physical injury that caused it; or,
2. Loss of use of tangible property that is not physically injured. All such loss shall be deemed to occur at the time of the Occurrence that caused it.
Terra App. Tab 4 at A-105. The National Union Policy defines an "occurrence" with respect to property damage as follows:
1. As respects Bodily Injury or Property Damage, an accident, including continuous or repeated exposure to conditions, which results in Bodily Injury or Property Damage neither expected nor intended from the standpoint of the Insured. All such exposure to substantially the same general conditions shall be considered arising out of one Occurrence.
Terra App. Tab 4 at A-104.
The National Union Policy also provides that National Union has "the right and the duty," subject to the terms and conditions of the policy, to provide Terra with a defense against any claim or lawsuit seeking damages against Terra that is covered by the terms of the National Union Policy. Pursuant to Endorsement Number 23, the National Union Policy provides that Terra has the sole discretion to choose legal counsel to defend itself against any claim or suit seeking damages against Terra that is covered by the terms of the policy.
On January 1, 1998, Terra acquired a chemical plant in Severnside, Bristol, England, from ICI. The Severnside plant produced fertilizer by reforming natural gas. One of the by-products of the manufacture of fertilizer through the reforming process is carbon dioxide. The carbon dioxide was sold to Messer UK limited, Hydrogas Limited, and BOC limited (collectively "the Resellers" unless otherwise indicated). The Resellers then sold the carbon dioxide to other companies that incorporated the carbon dioxide into carbonated beverages during the bottling of beverages (collectively "the Bottlers" unless otherwise indicated).1 Some of the Bottlers then sold the beverages to other sellers (collectively "the Beverage Sellers" unless otherwise indicated).
On May 18, 1998, Terra learned that benzene had been discovered in a routine sample of carbonated mineral water being tested for importation to the United States. An investigation disclosed that leaks in a C-114 Feed Preheater exchanger at the Severnside plant had permitted some natural gas, which naturally contains benzene, to bypass the reforming section of the plant, where benzene and other impurities would have been removed. As a result, benzene ended up in the carbon dioxide product produced at the Severnside plant. Numerous tests were conducted to determine the nature and extent of the contamination of carbon dioxide produced by Terra. Although the levels of benzene found in the carbon dioxide did not pose a threat to human life, many of the Bottlers and the Beverage Sellers instituted a recall of their products from distributors and retailers.
The Bottlers and the Beverage Sellers asserted claims against the Resellers who, in turn, asserted claims against Terra, seeking to be held harmless from all fees, costs, expenses and damages in connection with the claims. Most of the Bottlers and Beverage Sellers also asserted direct claims against Terra. Terra promptly notified National Union of these claims. Terra's initial defense costs exhausted its $1,000,000 primary policy...
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