Quaker State Minit-Lube, Inc. v. Fireman's Fund Ins. Co.

• Decision Date: 18 April 1995
• Docket Number: No. 94-4120,INC,MINIT-LUB,94-4120
• Citation: 52 F.3d 1522
• Parties: QUAKER STATE, Plaintiff-Appellant, v. FIREMAN'S FUND INSURANCE COMPANY, The American Insurance Company, National Surety Corporation, Liberty Mutual Insurance Company, Continental Insurance Company, Unigard Insurance Company, Defendants-Appellees.
• Court: U.S. Court of Appeals — Tenth Circuit

Page 1522

52 F.3d 1522

QUAKER STATE MINIT-LUBE, INC., Plaintiff-Appellant, v. FIREMAN'S FUND INSURANCE COMPANY, The American Insurance

Company, National Surety Corporation, Liberty Mutual

Insurance Company, Continental Insurance Company, Unigard

Insurance Company, Defendants-Appellees.

No. 94-4120.

United States Court of Appeals, Tenth Circuit.

April 18, 1995.

Wiley E. Mayne (Steven W. Black with him, on the brief) of Holland and Hart, Denver, CO, for plaintiff-appellant.

Daniel A. Bartoldus of Rivkin, Radler & Kremer, Uniondale, NY, Barbara K. Berrett of Richards Brandt Miller & Nelson, Salt Lake City, UT, (Lawrence A. Levy and Abbe L. Koplitz of Rivkin, Radler & Kremer, Uniondale, NY, Mark J. Williams of Hanson Epperson & Smith, Salt Lake City, UT, Ford G. Scalley and John E. Hansen of Scalley & Reading, Salt Lake City, UT, with them on the brief), for defendants-appellees.

Before SEYMOUR, Chief Judge, ALDISERT, ^* and BALDOCK, Circuit Judges.

BALDOCK, Circuit Judge.

Plaintiff Quaker State Minit-Lube, Inc. filed this federal diversity action for a declaratory judgment against Defendants Fireman's Fund Insurance Company, American Insurance Company, National Surety Corporation, Liberty Mutual Insurance Company, Continental Insurance Company, and Unigard Insurance Company, seeking a determination that Defendants were obligated to defend and indemnify Plaintiff for environmental clean-up costs. Plaintiff appeals the district court's entry of summary judgment in favor of Defendants. We exercise jurisdiction under 28 U.S.C. Sec. 1291 and affirm.

The district court set forth the undisputed facts underlying this controversy in Quaker State Minit-Lube, Inc. v. Fireman's Fund Ins. Co., 868 F.Supp. 1278 (D.Utah 1994); we restate, however, the facts relevant to the instant appeal. Plaintiff owns and operates a number of automobile service centers which provide simple vehicle maintenance, including engine oil changes. The service centers drain used engine oil into holding tanks for periodic sale to re-refiners or recyclers. Between 1977 and 1985, Plaintiff sold the used oil to Ekotek, Inc., which operated a facility in Salt Lake City, Utah (the "Ekotek Site") to recycle or re-refine used automobile and industrial oils. Ekotek reprocessed the used oil into lubricating products for resale.

In the ordinary course of business between Plaintiff and Ekotek, Ekotek collected used oil from holding tanks at service centers operated by Plaintiff and transported the used oil to storage tanks at the Ekotek Site for later re-refining. At its site, Ekotek stored approximately 500,000 gallons of liquid containing hazardous substances in sixty above-ground storage tanks ranging from 2,900 gallons to 87,000 gallons, and in 475 drums and 1,500 smaller containers. The Ekotek Site also included three surface impoundments, piles and pits of waste material, underground tanks, and an underground drain field.

Unbeknownst to Plaintiff, prior to 1977 and during the years it conducted business with Ekotek, unknown amounts of used oil and other wastes were released onto the ground at the Ekotek Site, significantly contaminating the soil, surface water, and ground water. The record depicts numerous incidents, accidents, and practices at the Ekotek Site which resulted in discharges of used oil and other contaminants. Two accidents in the loading and unloading of Union Pacific Rail Road cars discharged approximately 12,000 gallons of used oil. The majority of the used oil went underground in a trench designed to collect rainwater runoff from the rail siding. In 1981, between 6,000 and 10,000 gallons of used oil and approximately 700 gallons of motor oil additive were discharged onto the ground during a fire at the Ekotek Site.

Prior to 1967, acid sludge produced in the re-refining process was discharged into a pit at the Ekotek Site, and was not subsequently removed. Beginning in November 1980, acid sludge was dumped directly on the ground in a different large, unlined, earthen pit. Acid sludge would remain in the pit up to a month before it was transported off site. Ekotek continued this cycle of dumping then disposing of acid sludge until at least 1985. Spent clay used in the re-refining process accumulated on the ground at the Ekotek Site before it was periodically hauled away.

Deposition testimony of former refinery employees depicted frequent accidental discharges of used oil and other substances at the Ekotek Site, including tank overflows from operator error, truck spills from driver error, and leaks from faulty equipment. Alex Bloomfield recalled significant tank spills each year he worked at Ekotek between 1978 and 1985. Keith Hitesman testified that waste oil would overflow onto the bare ground during the unloading process, and stated that in 1984 a hose pulled away when unloading, spilling 50 to 100 gallons of used oil. Hitesman also recalled a 2,000 to 3,000 gallon spill during a transfer in the containment area that contaminated the soil. James Blaser stated that in 1985 there was a large spill when a manhole was left off a tank and used oil flowed down the side of the tank and across the ground to the other end of the Ekotek Site. Blaser also recalled two or three incidents when water in the hot oil in tank 52 caused accidental overflows of approximately 500 gallons. Further, Blaser stated that he did not recall any year when there was not an accidental spill or mishap at the Ekotek Site.

Scott Adair recalled runovers in the processing area at the Ekotek Site in 1980 or 1981 that released so much used oil that the spills flowed across the street. Adair remembered overflow incidents once or twice annually between 1978 and 1983 when acid sludge was loaded onto trucks. The spills released approximately 500 to 2,000 gallons of oil and acid mixture on to the ground that flowed down the road. During cold weather, Adair stated that employees transferring sludge from a tank to a truck would go inside to warm up while the sludge drained into the truck. At times, the sludge would overflow "and it would be a river [of acid treated oil] running along that roadway."

Other former Ekotek employees testified that the inferior and outdated equipment used to recycle the used oil persistently discharged contaminants on the Ekotek Site. Plate and frame filters would regularly "squirt oil all over the place" during daily operations. Broken or leaking process equipment was not repaired or replaced unless absolutely necessary. Leaky pumps were a facet of everyday operations.

Plant operators and supervisors stated that the ongoing failure of employees during the period of 1967 to 1988 to keep the site clean contributed to the contamination. Specifically, employees failed to empty buckets of oil, pump oil from catch basins, clean spilled oil, and prevent oil leaks from trucks, pumps, and other machinery.

Employees testified that oily water regularly and routinely ran over from tanks, valves, dump trucks, catch basins, and earthen berms, and leaked onto the bare earth. Back-ups of oily water in the east tank area and in the wrecking yard occurred systematically. Further, frequent oil overflows contaminated the soil in two large retention areas in the northwest portion of the Ekotek Site.

As a consequence of the numerous discharges of pollutants which occurred during the years the Ekotek Site was in operation, the soil, surface water, and groundwater on or near the site became significantly contaminated with oil and other toxic substances. In 1988, the United States Environmental Protection Agency ("EPA") commenced response activities involving the Ekotek Site pursuant to its authority under the Comprehensive Environmental Response, Compensation, and Liability Act of 1980 ("CERCLA"), 42 U.S.C. Secs. 9601-9657, amended by Superfund Amendments and Reauthorization Act of 1986, Pub.L. 99-499, 100 Stat. 1613 (1986). The EPA designated the Ekotek Site a CERCLA facility pursuant to 42 U.S.C. Sec. 9601(9) because of contamination by hazardous substances as defined by 42 U.S.C. Sec. 9601(14)(A), and ultimately placed the Ekotek Site on the National Priorities List or "Superfund List." See 40 C.F.R. Pt. 300, App. B, at 214 (1994). By February 1992, the EPA had formally identified 470 entities, including Plaintiff, as potentially responsible parties ("PRPs"), and informed the PRPs that they may be liable for response costs ¹ incurred during the EPA's cleanup efforts at the Ekotek Site.

Plaintiff, and a number of other businesses identified by the EPA as PRPs under CERCLA, formed the Ekotek Site Remediation Committee, which has funded the clean-up activities at the Ekotek Site pursuant to a consent decree entered with the EPA. As of January 15, 1993, the Committee has expended approximately $10,000,000.00 to cover response costs for the Ekotek Site. Further, the record reflects that total response and clean-up costs for the Ekotek Site may exceed $60,000,000.00.

In order to defray a portion of its liability for the clean-up of the Ekotek Site, Plaintiff sought coverage from Defendant insurance companies that had sold it insurance policies during the years Plaintiff conducted business with Ekotek. Between 1980 and 1986, Plaintiff purchased various comprehensive general liability ("CGL") policies and primary garage liability policies from Defendants. The relevant coverage language in each policy is substantially similar, and obligates Defendants to defend and indemnify Plaintiff for liability claims for damages based on bodily injury or property damage caused by an occurrence. The policies define an occurrence as: "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." Each policy also includes a qualified pollution exclusion clause which excludes coverage for:

[B]odily injury or property damage arising out of the...