SCSC Corp. v. Allied Mut. Ins. Co.
| Decision Date | 26 April 1994 |
| Docket Number | Nos. C2-93-1408,C8-93-1414 and C3-93-1630,s. C2-93-1408 |
| Citation | 515 N.W.2d 588 |
| Parties | SCSC CORP., formerly known as Schloff Chemical and Supply Company, Respondent, v. ALLIED MUTUAL INSURANCE COMPANY, as successor in interest to AID Insurance Company, Appellant (C2-93-1408), Respondent (C8-93-1414, C3-93-1630), Tower Insurance Company, Respondent (C2-93-1408), Appellant (C8-93-1414, C3-93-1630). |
| Court | Minnesota Court of Appeals |
Syllabus by the Court
1. Insurance coverage is triggered by property damage during the policy period, not by manifestation of the damage.
2. When property damage is caused by a covered cause and by an excluded cause, the insured is entitled to coverage unless the excluded cause was the overriding cause.
3. For purposes of the qualified pollution exclusion, "discharge, dispersal, release or escape" means issuance from a state of containment, not the resulting harm.
4. In cases involving long-term exposure to conditions, primary and umbrella insurance policies are triggered vertically for each year of coverage, not horizontally for the entire period of harm.
5. When an insurance policy requires the insurer to pay all sums that the insured becomes legally obligated to pay, the insured is not obligated to pay a pro rata share of damages that existed outside the policy period.
6. The primary carrier must pay all costs of defense when it has refused to state a coverage position and its policy requires payment of defense costs until the policy limits are exhausted.
7. Enhancement of attorney fees is not available in declaratory judgment actions Thomas C. Mielenhausen, James A. Mennell, Popham, Haik, Schnobrich & Kaufman, Ltd., Minneapolis, for SCSC Corp.
brought to determine insurance coverage questions.
Dale O. Thornsjo, Eric J. Strobel, Peterson & Hektner, Ltd., Minneapolis, for Allied Mut. Ins. Co.
Sean E. Hade, Mary P. Rowe, Jardine, Logan & O'Brien, St. Paul, for Tower Ins. Co.
Considered and decided by ANDERSON, C.J., and NORTON and MULALLY, * JJ.
The insurers of a business that allegedly contaminated the groundwater beneath its property appeal from a judgment, an amended judgment, and an order denying the insurers' motions for a new trial. The insurers allege they are not obligated to defend or indemnify their insured for the costs of cleaning up the groundwater contamination. We affirm the trial court in all respects except its award of enhanced attorney fees.
Beginning in 1950, Schloff Chemical and Supply Company (SCSC) was a wholesale distributor of cleaning products and supplies to nursing homes, hospitals, and dry cleaners. One of the products SCSC distributed to dry cleaners was a chemical known in the trade as "perc."
Dry cleaners use perc as a substitute for water to clean certain fabrics that would shrink or discolor if washed in water. Perc, which has been in use in the dry cleaning industry for decades, constitutes 90% to 95% of the fluid used for dry cleaning clothes. As a petroleum-based solvent, perc evaporates quickly when exposed to air and will dissolve asphalt over time. The Minnesota Department of Health classifies perc as a volatile organic compound and has set a recommended allowable limit for perc of seven parts per billion in groundwater used for drinking.
In 1975, SCSC moved from near downtown Minneapolis to St. Louis Park. SCSC had two 10,000 gallon tanks for storage of perc built at its St. Louis Park facility. The tanks at the SCSC facility were filled by railroad tank car or, more commonly, by truck transport. A fill pipe at the southwest corner of the SCSC building was used for incoming and outgoing deliveries of perc.
For making deliveries of perc, SCSC had a truck with a 600 gallon tank inside it. To fill the delivery truck, an SCSC warehouse worker would pump perc into the delivery truck's tank through a hose attached to the fill pipe at a rate of about 10 gallons per minute. After the delivery truck tank was filled, the truck driver would uncouple the fill hose and cap the fill pipe. During this process, a five gallon bucket was used to capture any drips or spills of perc. The tanker truck drivers delivering perc to SCSC also used buckets to catch any drips of perc; the perc in the drip buckets was put into a container inside the SCSC warehouse and reclaimed. Because of the cost and the hazardous nature of perc, SCSC employees were trained not to waste it.
Occasionally perc spills occurred at the SCSC facility. In the summer of 1977, Frank Marconi, a truck driver for SCSC, was filling the tank in the SCSC delivery truck when the tank overfilled and perc sprayed into Marconi's eyes. Perc continued to flow out of the fill hose for two or three minutes while Marconi was helped inside the SCSC facility to an emergency shower for chemical spills. The perc ran out of the back and side of the truck and through the truck's unsealed floor onto the parking lot. Given a flow rate of 10 gallons per minute, it was estimated that 20 to 30 gallons of perc were spilled in the 1977 incident. Richard Anderson, an SCSC employee who saw the 1977 spill, testified that the perc on the ground covered an area 16 feet long and 2 to 4 feet wide. The perc flowed into a seam in the asphalt along the west property line of the SCSC property. After reaching the seam, Anderson testified, the perc pooled and flowed north. On August 30, 1977, there was a seven-inch rainfall in the Twin Cities area.
In addition to the 1977 spill, there was evidence of other perc spills in various amounts between 1977 and 1989. Because the jury in this case found the 1977 perc spill was the first spill that resulted in groundwater contamination, we need not set forth in detail the facts of the other spills. In February 1989, a perc spill similar to the 1977 spill occurred. The 1989 spill was used to determine the likely effects of the 1977 spill.
On October 26, 1988, the Minnesota Pollution Control Agency (MPCA) sent SCSC a request for information (RFI) that advised Irv Schloff, one of the owners of SCSC, that the MPCA was investigating groundwater contamination by volatile organic compounds near SCSC's St. Louis Park facility. Volatile organic compounds, including perc, had been detected in the groundwater in February 1987.
The RFI included the following question:
To your knowledge, have any spills, leaks, releases, or discharges of virgin or used chemicals occurred at Schloff? If yes, please include the following information:
a. Describe the location(s) of any spills and what was spilled (locate the spills on the building diagram, if necessary).
b. What volume (approximately) of perc or other chemicals or waste was spilled?
c. How much of the spill was recovered?
d. Have any spills discharged directly into Minnehaha Creek?
Dennis Zimmer, SCSC's general manager, responded to the RFI:
A. Drippings have occurred at the southwest corner of the building during filling of tanks. Attaching couplings and hoses during the fill process have caused drips during this process.
B. Volume unknown--since drips have occurred for a period of years in small volume.
C. No indication of volume lost to cause concern to recover drips.
D. No. Our trucks never go near Minnehaha Creek and the berm surrounding our tanks indicate no leaks nor have we ever had above ground leaks from our tanks.
Zimmer did not talk to any other SCSC employees or conduct any investigation before responding to the RFI. He based the response on a single incident that occurred in 1988. SCSC responded to the RFI without consulting an attorney in order to economize. SCSC paid for the costs of cleanup, eventually borrowing $300,000 on a line of credit. Once SCSC was no longer able to borrow money to pay for the cleanup, the MPCA took over payment.
In October 1989, SCSC's attorney wrote to appellants Allied Mutual Insurance and Tower Insurance company requesting that they defend and indemnify SCSC in the proceedings brought by the MPCA.
Despite repeated communications from SCSC, Allied neither admitted nor denied coverage. During the following months, Allied told SCSC that Allied was investigating the claim. Over a year after first notifying Allied and Tower of the MPCA proceedings, SCSC brought this declaratory judgment action.
Allied had provided primary comprehensive general liability insurance to SCSC from October 1972 through October 10, 1984. Under the terms of the Allied policies, Allied was obligated to pay all sums SCSC became legally obligated to pay as damages because of property damage caused by an occurrence. Allied also had the "right and duty" to defend any suit against SCSC for a covered claim.
The Allied policies defined "property damage" as "physical injury to or destruction of tangible property which occurs during the policy period" and "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." The Allied policies contained a qualified pollution exclusion which bars coverage for releases of pollutants that are not sudden and accidental.
Tower provided umbrella liability insurance coverage to SCSC from April 1977 through October 1982. The Tower policies obligated Tower to defend SCSC once the limits of the underlying insurance were exhausted. The Tower policies defined "property damage" and "occurrence" in a manner functionally the same as Allied's policies. In addition, the Tower policies contained a pollution exclusion clause functionally identical to Allied's.
The case proceeded to a jury trial where SCSC called hydrogeologist Keith Rapp as an expert witness. Rapp testified to his knowledge of the SCSC site, including the underlying soil, his analysis of perc flow rates, and the process of backdating to determine when...
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