Queen City Farms, Inc. v. Central Nat. Ins. Co. of Omaha

Decision Date06 April 1992
Docket NumberNo. 1-10001 and 1-10002,No. 22744-1-I,R,1-10001 and 1-10002,22744-1-I
CourtWashington Court of Appeals
PartiesQUEEN CITY FARMS, INC., a Washington corporation, Appellant/Cross-Respondent, v. The CENTRAL NATIONAL INSURANCE COMPANY OF OMAHA, a Nebraska corporation; Highlands Insurance Company, a Texas corporation; Maryland Casualty Company, f/d/b/a Maine Bonding & Casualty Company, a Maryland corporation, Respondents/Cross-Appellants, Ernest A. Moore & Companies, an underwriter at Lloyd's, London, for himself and on behalf of other subscribing underwriters, and Certain London Market Insurance Companies, subscribing to Certificatesespondents, United States Fire Insurance Company, a New Jersey corporation, Industrial Indemnity Company of the Northwest, a Washington corporation; North Star Reinsurance Corporation, a Delaware corporation; Unigard Mutual Insurance Company, a Washington corporation; General Insurance Company of America, a Washington corporation; and the Travelers Insurance Company, a Connecticut corporation, Defendants.
Preston Thorgimson, Shidler Gates & Ellis, Kirk A. Dublin, Paul J. Lawrence, Desmond L. Brown, Seattle, for appellant

Pamela A. Lang, Karr Tuttle Campbell, William J. Price, Lane Powell Spears Lubersky, and David Schoeggl, Seattle, for respondents.

Charles C. Gordon, William G. Clark, Ferguson & Burndell, Dennis J. Dunphy, Bradley P. Thoreson, Jon Schorr, Seattle, for amicus curiae.


Appellant Queen City Farms, Inc. (QCF) filed this action in 1986 seeking a declaratory judgment that its various comprehensive general liability insurance carriers were responsible for clean-up costs incurred by QCF following the seepage of hazardous wastes into the groundwater from the disposal site on QCF's property. In August 1983, and again in October 1985, QCF and The Boeing Company (the major waste disposer at the site) signed EPA consent orders jointly agreeing to clean up the property. By the time of trial, QCF's share of the clean-up costs totaled The order of dismissal followed a jury trial on certain factual disputes which had to be resolved in order to determine coverage under the policies.

                more than $1.8 million.   QCF's maximum additional potential liability for these costs is $5.5 million.   QCF appeals the trial court's order of July 18, 1988, dismissing its claims against Ernest A. Moore & Companies, an underwriter at Lloyd's, London, and certain London market insurance companies (Lloyd's);  Central National Insurance Company of Omaha and a related company, Highlands Insurance Company (Central National/Highlands);  and Maryland Casualty Company (Maryland Casualty). 1  The responding insurers provided excess coverage for Seattle Disposal Company (SDC) and a number of its subsidiaries, including QCF

All of the responding insurers except Lloyd's had issued policies containing qualified pollution exclusion clauses. By motion for summary judgment prior to trial, these insurers sought dismissal of QCF's claims, arguing that coverage was excluded as a matter of law, no matter how the disputed facts might be resolved, by reason of the pollution exclusion clauses. This motion was denied and the affected insurers have cross-appealed, seeking reversal of the order denying summary judgment of dismissal, in the event this court reverses the judgment which was entered on the jury verdict in favor of the responding insurers.

Several of the issues raised by QCF in this appeal and the issue raised by the insurers on cross appeal are of broad public interest and of substantial interest to the insurance industry and to policy holders. This is particularly so of those policy holders who have purchased comprehensive general liability "occurrence" policies over a period of many years and who now face retroactive, no-fault liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, 42 U.S.C. § 9601 et seq. (CERCLA). The issues are equally of interest to the

                insurers which issued the policies under which coverage is sought.   Accordingly this court has accepted, received and considered briefs of amici curiae The Boeing Company, Champion International Corporation, Time Oil Company and Monsanto Company (collectively referred to as amicus Boeing);  Public Utility District 1 of Chelan County;  and The Insurance Environmental Litigation Association (amicus Insurance Association)

The dispositive issues on appeal are as follows:

A. Issues Raised by QCF.

1. Did the trial court err by instructing the jury that QCF's expectation of groundwater pollution arising from the operation of its disposal site was to be determined on an objective, reasonable person basis rather than solely on a subjective basis? We hold that the trial court did err. The policy provisions in question provide coverage for

an accident or a happening or event or a continuous or repeated exposure to conditions which unexpectedly and unintentionally results in ... property damage ... during the policy period.

(Italics ours). We construe this language under Washington law to preclude coverage under these comprehensive general liability policies only if QCF subjectively expected and intended to cause the groundwater pollution which occurred. 2

2. Did the trial court err by instructing the jury that QCF bore the burden of proving that it did not expect its disposal activities to result in groundwater pollution? We hold that the trial court did not err in placing the burden of proof as to QCF's subjective expectation and intent upon QCF (the instruction in question was erroneous only insofar as it also included reference to the objective standard of expectation).

3. Did the trial court err by failing to dismiss Lloyd's and Central National/Highland's intentional misrepresentation defenses for their failure to timely tender the insurance B. Issue Raised by the Cross-Appealing Insurers.

                premiums paid for the coverage they sought to avoid?   We hold that the trial court did err.   This ruling will require that we reverse the order of dismissal as to Lloyd's and remand for entry of judgment that Lloyd's is obligated to provide coverage under its policies.   At the new trial as to Central National/Highlands this will also require that the misrepresentation defense be stricken. 3

Did the trial court err by failing to grant summary judgment of dismissal of QCF's claims based on the qualified pollution exclusion clauses contained in the policies issued by Central National/Highlands and Maryland Casualty? We hold that the trial court did not err.

A. History of the Property.

The property at issue is located near Maple Valley, Washington. It was originally purchased by the owners of SDC in 1951 for use as a hog farm. 4 The hog farm was operated for approximately 5 years in the mid-1950's. Before purchasing the parcel SDC had the property examined by an engineering company to determine its suitability as a hog farm. The engineering company reported that the property had "good drainage".

SDC eventually ceased operating the hog farm. In the mid-1950's representatives of the King County Health Department approached SDC and requested that the owners permit On January 1, 1956, local industries began depositing industrial waste into a natural gully on the property. As the gully filled, dikes were built to separate the gully into three ponds. These ponds were constructed by deepening the gully and using the earth scooped from the bottom of the gully to create berms surrounding and separating the three ponds. The ponds were arranged so that as the first one filled to capacity the liquid would pour over into the second and third ponds. The total capacity of the ponds was approximately 1 million gallons.

                oil, paint, roofing materials and tar to be disposed of on the property.   This request was made because King County did not own an adequate disposal site.   The request was granted

In 1957, SDC entered into an arrangement with The Boeing Company. Between 1957 and 1969 Boeing dumped millions of gallons of highly toxic wastes into the ponds.

Although no permits were ever issued for the disposal operation, the King County Health Department and the Washington State Pollution Control Commission were generally aware of and monitored the disposal operations. By 1959, there was some evidence of contamination seeping from the ponds into a nearby lake and into a stream some distance away. However, a thorough investigation was not made and although several employees of the State's Pollution Control Commission knew about and deplored the industrial waste dumping that was going on, the agency never took formal action to halt the dumping. Josie Razore testified that the ponds were "checked all the time ... but they never shut us down, never complained about our operation."

In 1966, when QCF acquired title to the property, it continued to operate the disposal site. QCF's owners testified at the trial that they believed that large quantities of waste in the ponds were eliminated when the ponds were periodically set ablaze and burned to keep them from overflowing. The burnings created a tar like sludge seal at the bottom of the ponds which appeared to contain most of the unburned waste within the ponds. The owners testified that they believed that any waste which entered the ground would be Two of the owners maintained summer homes on the property near the ponds. The water supply for their families, their employees and their farm animals came from a spring and adjacent well located approximately 2000 feet down hill from the ponds. Razore had the well water tested annually to ensure it was safe for human consumption. No contamination has ever been found in the well.

purified and filtered by the sand, hardpan clay and gravel surrounding the ponds.

The dumping of wastes into the ponds was discontinued in 1969. The ponds lay...

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