Reichhold Chemicals, Inc. v. Hartford Accident & Indemnity Co.

• Decision Date: 03 May 2000
• Docket Number: (SC 16156)
• Citation: 252 Conn. 774,750 A.2d 1051
• Court: Connecticut Supreme Court
• Parties: REICHHOLD CHEMICALS, INC. v. HARTFORD ACCIDENT AND INDEMNITY COMPANY ET AL.

252 Conn. 774

750 A.2d 1051

REICHHOLD CHEMICALS, INC. v. HARTFORD ACCIDENT AND INDEMNITY COMPANY ET AL.

(SC 16156)

Supreme Court of Connecticut.

Argued February 16, 2000.

Officially released May 3, 2000¹.

McDonald, C. J., and Borden, Norcott, Katz, Palmer, Sullivan and Callahan, JS. Francis J. Brady, with whom were Barry J. Fleishman, pro hac vice, and, on the brief, Elizabeth J. Stewart, April Lieberman, Leon B. Kellner, pro hac vice, and Robert W. Pommer III, pro hac vice, for the appellant (plaintiff).

Stephen A. Fennell, pro hac vice, with whom were John L. Altieri, Jr., pro hac vice, John B. Farley and John T. Harris, and, on the brief, Charles G. Cole, pro hac vice, Mary Woodson Poag, pro hac vice, Ralph DeSanto, pro hac vice, Michael G. Clear and Sheila A. Huddleston, for the appellees (defendant Home Insurance Company et al.).

Robert Kehmna filed a brief for the Insurance Association of Connecticut as amicus curiae.

Kathleen F. Munroe, Laura A. Foggan, pro hac vice, Daniel E. Troy, pro hac vice, and Keith U. Kuder, pro hac vice, filed a brief for the Insurance Environmental Litigation Association as amicus curiae.

Opinion

CALLAHAN, J.

The principal issue in this appeal is whether the trial court in the present insurance coverage case properly applied New York law under the analytical approach of the Restatement (Second) of Conflict of Laws, which this court adopted in Reichhold Chemicals, Inc. v. Hartford Accident & Indemnity Co., 243 Conn. 401, 703 A.2d 1132 (1997).

The relevant underlying facts are described fully in Reichhold Chemicals, Inc. v. Hartford Accident & Indemnity Co., supra, 243 Conn. 401. We briefly review those facts supplemented by certain additional facts relevant to the present appeal. Seeking reimbursement for pollution cleanup costs at various sites in several states, the plaintiff, Reichhold Chemicals, Inc., brought this suit against sixteen primary and excess liability insurance carriers from which it had purchased policies between 1952 and 1985. The trial court divided the action into separate trials based on site location. The trial at issue in the present appeal concerned only the plaintiffs facility located in Tacoma, Washington. Because of settlements and other proceedings, there now remain only six defendants,² all excess liability carriers who either were headquartered in New York or who dealt with the plaintiff through their New York offices.

The trial court bifurcated the trial into separate notice and coverage phases. At the first phase, the trial court determined that New York law applied to the issue of notice compliance and so instructed the jury. After the jury rendered a verdict in the defendants' favor, the plaintiff appealed from the judgment to the Appellate Court, and we transferred the appeal to this court pursuant to Practice Book § 65-1 and General Statutes § 51-199 (c).

In Reichhold Chemicals, Inc., we considered whether the trial court was correct when it applied New York law to the issue of notice compliance under our traditional lex loci contractus approach to choice of law questions. Prior to our decision in that case, we had moved away from the lex loci approach of the Restatement of Conflict of Laws § 332 et seq. (1934), and toward the more flexible "most significant relationship" approach taken in the Restatement (Second) of Conflict of Laws § 188 (1971) in other substantive areas of the law. Reichhold Chemicals, Inc. v. Hartford Accident & Indemnity Co., supra, 243 Conn. 412-13, citing Elgar v. Elgar, 238 Conn. 839, 840, 679 A.2d 937 (1996) (antenuptial contract); Cleveland v. U.S. Printing Ink, Inc., 218 Conn. 181, 182, 588 A.2d 194 (1991) (workers' compensation); O'Connor v. O'Connor, 201 Conn. 632, 633-64, 519 A.2d 13 (1986) (tort claim). As we noted then, this shift was consistent with the modern trend of many jurisdictions. Ultimately, we determined in Reichhold Chemicals, Inc. v. Hartford Accident & Indemnity Co., supra, 406-14, that the most significant relationship approach of the Restatement (Second) should be followed in contract cases. We therefore adopted "the... general presumption [of the Restatement (Second), supra, § 188], which provides that unless another state has an overriding policy-based interest in the application of its law, the law of the state in which the bulk of the contracting transactions took place should be applied. We also [adopted, however,] the ... special presumption for liability insurance contracts [of the Restatement (Second), supra, § 193], which provides that unless another state has an overriding policy-based interest in the application of its law, the law of the state in which the insured risk is located should be applied." Reichhold Chemicals, Inc. v. Hartford Accident & Indemnity Co., supra, 414. We subsequently concluded that Washington law should apply to the issue of notice compliance. Id., 423. We therefore reversed the judgment of the trial court and remanded the case for a new trial. Id., 426.

Upon the remand, there arose the two additional choice of law issues that are the subject of this appeal, namely, the pollution exclusion clauses in the relevant policies and the question of allocation of damages. The remaining defendants issued policies containing pollution exclusion clauses that excluded from coverage all pollution that is not "sudden and accidental" or "sudden, unexpected and unintended," the exact language depending on the particular policy.³ The laws of New York and Washington differ with respect to the interpretation of "sudden." The Washington Supreme Court has concluded "that `sudden' means `unexpected' in the context of CGL [Comprehensive General Liability] policies.... Thus [with respect to pollution coverage in Washington,] `sudden and accidental' means `unexpected and unintended'." Queen City Farms, Inc. v. Central National Ins. Co., 126 Wash. 2d 50, 90, 882 P.2d 703 (1994). The Court of Appeals of New York, on the other hand, has emphasized "the temporal element of sudden—as an abrupt happenstance...." (Emphasis in original.) Northville Industries Corp. v. National Union Fire Ins. Co., 89 N.Y.2d 621, 633, 679 N.E.2d 1044, 657 N.Y.S.2d 564 (1997); id., 634 ("abruptly or within a short timespan"). Under New York law, "for a release or discharge to be `sudden' within the meaning of [a] pollution exclusion, it must occur abruptly or quickly or `over a short period of time ... " Borg-Warner Corp. v. Ins. Co. of North America, 174 App. Div. 2d 24, 31, 577 N.Y.S.2d 953, leave to appeal denied, 80 N.Y.2d 753, 600 N.E.2d 632, 587 N.Y.S.2d 905 (1992).

The laws of Washington and New York also differ with respect to the question of allocation of damages. New York law rejects joint and several liability in favor of a pro rata allocation of covered property damage that occurs during the policy period based on the time during which the insurer was on the risk. Stonewall Ins. Co. v. Asbestos Claims Management Corp., 73 F.3d 1178, 1203 (2d Cir. 1995); Olin Corp. v. Ins. Co. of North America, 986 F. Sup. 841, 844-45 (S.D.N.Y. 1997); Uniroyal, Inc. v. Home Ins. Co., 707 F. Sup. 1368, 1392 (S.D.N.Y. 1988); Diamond Shamrock Chemicals Co. v. Aetna Casualty & Surety Co., 258 N.J. Super. 167, 244-45, 609 A.2d 440 (1992), cert. denied, 134 N.J. 481, 634 A.2d 528 (1993) (interpreting New York law). The Washington Supreme Court, however, has rejected a pro rata allocation of liability and has indicated that any insurer that was on the risk when a triggering event occurred will be jointly and severally liable for the entire amount of damages up to its policy limits. American National Fire Ins. Co. v. B & L Trucking & Construction Co., 134 Wash. 2d 413, 428-29, 951 P.2d 250 (1998).

Upon remand in this case following Reichhold Chemicals, Inc. v. Hartford Accident & Indemnity Co., supra, 243 Conn. 401, the trial court, as a preliminary matter, conducted a choice of law analysis beginning with the presumption that the law of the site applied. See 1 Restatement (Second), supra, § 193. It determined, however, that "New York has an overriding interest in having its laws applied to the issues of the pollution exclusion and allocation of damages."

Relying on the court's determination that New York law applied, the defendants moved for summary judgment on two grounds. First, they sought summary judgment on the ground that the pollution exclusion clauses contained in their policies precluded coverage because the spills for which coverage was sought were not "sudden" as New York law defines that term. Second, the defendants asserted that they were entitled to summary judgment because New York law, which requires allocation, so limited the recoverable damages that the damages would not reach their respective excess liability coverages.

The trial court granted summary judgment as to two defendants, National Union Fire Insurance Company of Pittsburgh, Pennsylvania, and Granite State Insurance Company, whose policies included pollution exclusion clauses. That court granted partial summary judgment as to the other defendants, namely, American Home Assurance Company, Century Indemnity Company, Commercial Union Insurance Company and The Home Insurance Company, on certain policies. Some of the policies issued by those other defendants, however, did not include such clauses. With respect to allocation, the trial court granted summary judgment to the five defendants that had moved for summary judgment,⁴ concluding that the method of allocating damages precluded any of the excess policies from being triggered because the respective threshold amounts would not be reached. The court noted that, even if the plaintiffs maximum potential damage figure were accepted, the primary and other underlying layers of excess coverage would cover the maximum amount allocable to each year without the defendants' policy amounts being reached. Accordingly, the trial court rendered summary judgment for the defendants. The...