Norfolk Southern Corp. v. Calif. Union Ins.

• Citation: 859 So.2d 167
• Decision Date: 12 September 2003
• Docket Number: No. 2002 CA 0371, No. 2002 CA 0369, No. 2002 CA 0372.
• Parties: NORFOLK SOUTHERN CORPORATION, Norfolk Southern Railway Company, Norfolk and Western Railway Company, the Alabama Great Southern Railroad Company, Southern Region Industrial Realty, Inc., Central of Georgia Railroad Company, and the Cincinnati, New Orleans and Texas Pacific Railway Company v. CALIFORNIA UNION INSURANCE COMPANY and Certain Underwriting Members of Lloyd's, et al.
• Court: Court of Appeal of Louisiana — District of US

859 So.2d 167

NORFOLK SOUTHERN CORPORATION, Norfolk Southern Railway Company, Norfolk and Western Railway Company, the Alabama Great Southern Railroad Company, Southern Region Industrial Realty, Inc., Central of Georgia Railroad Company, and the Cincinnati, New Orleans and Texas Pacific Railway Company v. CALIFORNIA UNION INSURANCE COMPANY and Certain Underwriting Members of Lloyd's, et al.

Nos. , , .

Court of Appeal of Louisiana, First Circuit.

September 12, 2003.

Writ Denied December 19, 2003.

Cory R. Cahn, Benjamin R. Slater, Jr., Benjamin R. Slater, III, New Orleans, Carmack M. Blackmon, Baton Rouge, Counsel for Plaintiffs-Appellees Norfolk Southern Corporation, et al.

H. Alston Johnson III, Michael D. Hunt, Freddie Pitcher, Jr., Jane H. Barney, Baton Rouge, Richard N. Dicharry, New Orleans, Counsel for Defendants-Appellants Certain Underwriting Members of Lloyd's.

Before: FOIL, KUHN, and CLAIBORNE,¹ JJ.

CLAIBORNE, J.

The Norfolk Southern Corporation and certain of its affiliated railroad companies (collectively Norfolk)² filed this lawsuit for declaratory judgment and damages against various underwriting members of Lloyd's of London and certain London Market Insurance Companies (collectively the London Insurers).³ In its original and amended petitions, Norfolk sought a declaration that it had coverage under several excess comprehensive general liability policies subscribed to by the London Insurers from 1969 to 1986 for the costs of cleaning up various polluted sites around the United States, including three sites located in St. Tammany parish, Louisiana: (1) the Pearl River site; (2) the Bayou Bonfouca site; and (3) the Southern Shipbuilding site.⁴ Three judgments dealing with (1) coverage, (2) allocation method among various policies, and (3) designation of policy in accord with judgment (2), are challenged in separate appeals numbered 2002 CA 0369, 2002 CA 0371, and 2002 CA 0372, respectively.⁵

I. BACKGROUND

A. Pearl River Site

The Pearl River site consists of several acres of land in St. Tammany parish that had been owned by Norfolk since 1882.⁶ In 1963, Norfolk leased the site, consisting of approximately 16.5 acres, to the Pearl River Wood Preserving Company (PRWPC) for use in its wood-treating operations. In connection with this lease, the parties also entered into an agreement providing for the construction and operation of railroad tracks into the site to allow Norfolk to provide rail service to PRWPC.

In its wood-preserving operations, PRWPC initially used pentachlorophenol (penta) as a preservative but later switched to creosote. When the wood-treating facility was constructed in 1963, PRWPC dug two unlined, earthen pits near the facility in order to contain wastewater from its operations. Creosote, penta, and water were deposited into the pits and on the ground during the normal course of operations. The creosote, which was heavier than water, ultimately sank to the bottom of the pits, where some of it was occasionally recovered and used again in the wood-treating operations.

At times, these pits would overflow, and the wastewater, including creosote and penta components, would flow across the site toward a low-lying wooded area at the edge of the property. From there, the wastewater would continue beyond the property boundaries, underneath Interstate 59 to a nearby bayou, and then on to the Pearl River. Aerial photos of the site taken in the 1960s demonstrate extensive environmental damage in this low-lying area, such as stains and large unvegetated areas covered with dead trees, which resulted from contact with creosote and other wood preservatives.

In 1971, the predecessor entity of the Louisiana Department of Environmental Quality (LDEQ) directed the PRWPC to construct a levee in the low-lying area of the property in order to prevent this wastewater from running off site. Once the levee was constructed, the wastewater began to collect against the levee forming what was later referred to as the large surface impoundment. The wastewaters that collected here were periodically pumped to another lagoon at the northern end of the site, where they were disposed of through evaporation.

PRWPC closed the Pearl River facility and moved its creosoting operations into Mississippi in late 1973 or 1974. The unlined pits were subsequently filled in with soil, and in 1977, Norfolk leased part of the property to E.M. McIntire, who operated the Pear River Chemical Company on the site. Norfolk also leased part of the property to Pearl River Transport Company for use as a cement factory.

In 1980, Norfolk sold the property to Pearl River Transport, which assumed McIntire's lease. Pearl River Transport subsequently sold one-half of the property to Pearl River Chemical Company (now Chemlink). Throughout all periods, Norfolk retained a right of way along the railroad tracks in order to continue to provide rail service to the businesses at the site. Norfolk built new tracks into the site in 1982, and continued to provide rail service there at the time of trial.

In 1983, Norfolk notified the EPA of suspected hazardous materials releases on the site. In 1985, the LDEQ collected and analyzed samples of material from the Pearl River site and ultimately determined that these samples contained hazardous waste substances that could present an imminent and substantial endangerment to health or the environment. On September 22, 1987, the LDEQ issued an order naming PRWPC, Norfolk, Atlantic Richfield Company (ARCO), and others as potentially responsible parties (PRPs) in connection with the results of this analysis and required that they submit a remedial work plan for the site.⁷ Testing revealed that the groundwater at the site had been contaminated with wood preservative components, and that this contamination had migrated beyond the property boundaries. The LDEQ believed that the large surface impoundment was a significant source of this groundwater contamination, as well as a threat to trespassers and children who might enter the site, and ordered Norfolk and the other PRPs to remediate that area. In 1994, Norfolk began excavating the contaminated soils from the impoundment and shipped them to a hazardous waste landfill. This cleanup operation took approximately eight months to complete. The excavated area was then filled in with clean soil.⁸

The LDEQ also ordered an investigation of the two earthen pits on the site. The investigation revealed a highly contaminated area around the old process unit near the pits, as well as groundwater contamination that was moving off the site. Therefore, in 1995, the LDEQ ordered the removal of that source of contamination. The remediation of this area of the site began in June 1998, and was completed approximately one month later. The site has been remediated at a total cost to Norfolk of $5,335,688.49.⁹

B. Bayou Bonfouca Site

The Bayou Bonfouca site is comprised of approximately 55 acres of land and 4,000 feet of navigable water located in Slidell. The site was operated as a wood-preserving facility from 1882 to 1972. Creosote was used throughout this period in the normal operations of the facility, which included treating wooden railroad ties, pilings, and telephone poles.

In 1976, the United States Coast Guard discovered creosote in the sediments of the Bayou Bonfouca waterway. Subsequent investigation of the site by the United States Environmental Protection Agency (EPA) and other entities confirmed the existence of high levels of creosote contamination on the surface of the site, as well as in the bayou sediments and groundwater on the site. Based on these findings, the site was placed on the National Priorities List in 1983, thus identifying it as one of the facilities at which releases or threatened releases of hazardous substances are found to present threats to public health, welfare, or the environment. After additional investigation of the site, the EPA began remediation procedures, including the construction of a groundwater treatment facility on the site in 1990.

In 1996, the EPA filed a cost recovery action regarding the site pursuant to the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 (CERCLA) against The Alabama Great Southern Railroad Company (AGS) and others. AGS was named as a defendant in the proceedings as the successor to the New Orleans & Northeastern Railroad (NO & NE). According to the EPA, NO & NE, which was merged into AGS on January 31, 1969, had built and operated the creosote facility on the site in the 1880s. The EPA set forth three theories of liability against AGS: (1) the railroad had owned the site from 1882 to 1902; (2) the railroad had operated the site from 1882 to 1884; and (3) the railroad had control of the site as an owner/operator until 1972 by virtue of various track agreements with the creosote companies that conducted operations at the site.¹⁰

According to the EPA's suit, the site became contaminated during its years of operations due to numerous substantial releases of creosote caused by operations and disposal practices that remained essentially unchanged throughout the period of the operation of the facility. In addition, the EPA alleged that an unknown amount of creosote was released onto the ground and into the bayou when a holding tank on the site ruptured during a fire at the site.¹¹

The site was fully cleaned up under the direction of the EPA. As part of the removal action, the EPA decided to dredge the sediments in the bayou and bring them on site. The EPA also excavated the highly contaminated soils on the site and began to pump and treat the groundwater. An incinerator was brought onto the site, and all of the contaminated soils and sediments were incinerated. A landfill was constructed on the site, and the treated soil was placed there. By 1996, most of the work on the site was completed, but remediation of the groundwater contamination had not yet been completed....