Smith v. Hughes Aircraft Co.

• Decision Date: 03 May 1994
• Docket Number: 91-16877,Nos. 91-16758,92-16901 and 92-16957,92-15815,91-16876,s. 91-16758
• Citation: 22 F.3d 1432
• Parties: Ronald John SMITH, Plaintiff-Appellee, v. HUGHES AIRCRAFT COMPANY, Defendant-Appellant. HARTFORD ACCIDENT & INDEMNITY COMPANY, Plaintiff-Appellee, v. HUGHES AIRCRAFT COMPANY, Defendant-Appellant. INSURANCE COMPANY OF NORTH AMERICA, Plaintiff-Appellee, v. HUGHES AIRCRAFT COMPANY, Defendant-Appellant. Ronald John SMITH; Hartford Accident & Indemnity Company, Plaintiffs-Appellees, v. HUGHES AIRCRAFT COMPANY, Defendant-Appellant. Ronald John SMITH; John Edgar Gale; Philip John Freemen, American Home Assurance Company and National Union Fire Insurance Company, et al., Plaintiffs-Appellees, v. HUGHES AIRCRAFT COMPANY, Defendant-Appellant. INSURANCE COMPANY OF NORTH AMERICA, Plaintiff-Appellee, v. HUGHES AIRCRAFT COMPANY, Defendant-Appellant.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 1432

22 F.3d 1432

Ronald John SMITH, Plaintiff-Appellee, v. HUGHES AIRCRAFT COMPANY, Defendant-Appellant.

HARTFORD ACCIDENT & INDEMNITY COMPANY, Plaintiff-Appellee, v. HUGHES AIRCRAFT COMPANY, Defendant-Appellant.

INSURANCE COMPANY OF NORTH AMERICA, Plaintiff-Appellee, v. HUGHES AIRCRAFT COMPANY, Defendant-Appellant.

Ronald John SMITH; Hartford Accident & Indemnity Company, Plaintiffs-Appellees, v. HUGHES AIRCRAFT COMPANY, Defendant-Appellant.

Ronald John SMITH; John Edgar Gale; Philip John Freemen,

American Home Assurance Company and National Union

Fire Insurance Company, et al., Plaintiffs-Appellees, v. HUGHES AIRCRAFT COMPANY, Defendant-Appellant.

INSURANCE COMPANY OF NORTH AMERICA, Plaintiff-Appellee, v. HUGHES AIRCRAFT COMPANY, Defendant-Appellant.

Nos. 91-16758, 91-16876, 91-16877, 92-15815, 92-16901 and 92-16957.

United States Court of Appeals Ninth Circuit.

Argued and Submitted June 15, 1993.

Decided Nov. 26, 1993.

As Amended on Denial of Rehearing

May 3, 1994.

Jeffrey S. Davidson, Kirkland & Ellis, Los Angeles, CA, for appellant.

John R. Tomlinson and David M. Schoeggl, Lane Powell Spears Lubersky, Seattle, WA, for appellees Ronald John Smith, et al.

Thomas F. Connell, Wilmer Cutler & Pickering, Washington, DC, for appellee Ins. Co. of North America.

Peter W. Davis, Crosby, Heafey, Roach & May, Oakland, CA, for appellee Hartford Acc. and Indem. Co.

Appeal from the United States District Court for the District of Arizona.

Before: FAIRCHILD ^*, BEEZER, and WIGGINS, Circuit Judges.

ORDER

The opinion filed November 26, 1993, and published at 10 F.3d 1448 (9th Cir.1993), is amended as follows:

With this amendment, the panel has voted unanimously to deny the petitions for rehearing filed by Hughes Aircraft Company, Insurance Company of North America, and Smith & Companies.

The petitions for rehearing are DENIED.

AMENDED OPINION

WIGGINS, Circuit Judge:

OVERVIEW

In 1985, approximately 2,400 residents of the City of Tucson ("the Valenzuela claims") sued Hughes Aircraft Company ("Hughes") for injuries arising out of contamination of their drinking water due to Hughes' practice of discharging trichloroethylene ("TCE") into unlined ponds. In 1991, Hughes settled the Valenzuela claims with a payment of almost $85 million. Ronald John Smith and other Lloyd's underwriters ("Lloyd's"), Hartford Accident and Indemnity Company ("Hartford"), and Insurance Company of North America ("INA") (collectively referred to as "Insurers") brought declaratory judgment actions beginning in 1988 to determine their respective liability for the Valenzuela claims.

On September 6, 1991, the district court granted summary judgment for the Insurers with respect to policies issued between 1971 and 1985, 783 F.Supp. 1222. On March 19, 1992, the district court declined to review a $55,777.83 award for Hartford's deposition costs that was issued by the district court clerk. Finally, on September 16, 1992, the district court granted summary judgment for INA and Lloyd's with respect to policies issued between 1956 and 1971. Hughes timely appealed each decision. We have jurisdiction pursuant to 28 U.S.C. Sec. 1291. We affirm in part and reverse in part.

I. Standard of Review

We review de novo the district court's grants of summary judgment. See FDIC v. O'Melveny & Meyers, 969 F.2d 744, 747 (9th Cir.1992), cert. granted, --- U.S. ----, 114 S.Ct. 543, 126 L.Ed.2d 445 (Sept. 27, 1993); Musick v. Burke, 913 F.2d 1390, 1394 (9th Cir.1990). Viewing the evidence in the light most favorable to Hughes, we must determine "whether there are any genuine issues of material fact for trial, and whether the district court correctly applied the relevant substantive law." See O'Melveny &amp Meyers, 969 F.2d at 747. We also review de novo the district court's interpretation of state law. Salve Regina College v. Russell, 499 U.S. 225, 231, 111 S.Ct. 1217, 1221, 113 L.Ed.2d 190 (1991); Brooks v. Hilton Casinos, Inc., 959 F.2d 757, 759 (9th Cir.), cert. denied, --- U.S. ----, 113 S.Ct. 300, 121 L.Ed.2d 224 (1992).

II. Merits

A. The September 6, 1991, Order Granting Summary Judgment for Insurers. (Nos. 91-16758, 91-16876, & 91-16877)

1. The AVN 46A Pollution Exclusion.

The district court concluded that the language of AVN 46A unambiguously excluded pollution risks not only in the aviation policies, but also in the excess CGL policies. ¹ Hughes argues that the drafting history of AVN 46A and the testimony of key Lloyd's witnesses demonstrate that Lloyd's never intended the exclusion to apply to anything but aviation coverage. The district court refused to consider this evidence because Hughes "failed to tie it to the parties' intent." We agree with Hughes. Hughes presented evidence from Hughes' former insurance manager that his understanding of AVN 46A was based in part on AVN 46A's drafting history. Because it is unclear from the language of the exclusion whether AVN 46A applied to the CGL policy, this evidence is admissible to indicate the real agreement of the parties. See Darner Motor Sales v. Universal Underwriters Ins. Co., 140 Ariz. 383, 682 P.2d 388, 398 (1984); Pacific Gas & Elec. Co. v. G.W. Thomas Drayage & Rigging Co., 69 Cal.2d 33, 69 Cal.Rptr. 561, 442 P.2d 641, 644 (1968) (allowing extrinsic evidence to determine the parties' intent). ²

Hughes also presented evidence that its agents understood AVN 46A to apply only to aviation risks. Moreover, the plain language of AVN 46A, when read in its entirety, contains ambiguities that preclude summary judgment. For example, the AVN abbreviation denotes that the exclusion came from the aviation form book; the first AVN 46A exclusion, for noise, vibration, and sonic booms, appears to apply only to airplanes; and all four AVN 46A exclusions are subject to an exception for "a crash, explosion or collision or a recorded in-flight emergency causing abnormal aircraft operation." Thus, because Hughes' interpretation of the evidence regarding its understanding of AVN 46A supports the conclusion that the exclusion did not apply to non-aviation risks, we reverse the grant of summary judgment.

2. The "Sudden and Accidental" Exception to the Pollution Exclusion.

The district court concluded, as a matter of law, that the so-called pollution exclusion contained in the Insurers' 1974-1985 policies precluded coverage. The pollution exclusion contains an exception for "sudden and accidental" discharges. ³ The district court concluded that this exception did not apply because (1) under both Arizona and California law, the definition of "sudden" incorporates a notion of temporal brevity and does not merely mean unexpected; and (2) under the Valenzuela facts, the claimants' injuries were the result of pollution that was not "sudden." We agree.

a. "Sudden" Connotes Temporal Brevity.

Under Arizona law, the district court correctly concluded that the phrase "sudden and accidental" is ambiguous because different jurisdictions have interpreted the provision differently. See Federal Ins. Co. v. P.A.T. Homes, Inc., 113 Ariz. 136, 547 P.2d 1050, 1052-53 (1976), disapproved on other grounds, State Farm Mut. Auto. Ins. Co. v. Wilson, 162 Ariz. 251, 782 P.2d 727, 734 (1989); see also Intel Corp. v. Hartford Acc. & Indem. Co., 952 F.2d 1551, 1561 (9th Cir.1991) (recognizing disparate interpretations of the "sudden and accidental" exception). This ambiguity is properly analyzed under State Farm Mut. Auto. Ins. Co. v. Wilson, 162 Ariz. 251, 782 P.2d 727, 733-34 (1989). The district court properly (1) looked to the language of the exclusion and concluded that "sudden" "unmistakably connotes a temporal quality" (otherwise, it would simply be a synonym for "accidental"); (2) concluded that requiring temporal brevity furthered public policy by excluding deliberate indifference on the part of a polluting insured; and (3) analyzed the purpose of the transaction and, noting that Hughes is not an unsophisticated consumer, concluded that "an interpretation of 'sudden' that fails to recognize its temporal quality" would frustrate the parties' intent by forcing the Insurers to buy into the risk of insuring a pollution prone operation. See id. We agree with and adopt the district court's analysis and conclude that, under Arizona law, the "sudden and accidental" exception "unmistakably connotes a temporal quality."

Under California law, the district court summarily concluded that no ambiguity existed, citing only United States Fid. & Guar. Co. v. Morrison Grain Co., 734 F.Supp. 437, 446-47 (D.Kan.1990), aff'd, 999 F.2d 489 (10th Cir.1993). However, the district court's cursory conclusion is consistent with California law. The "clear and explicit" meanings of insurance contract provisions, interpreted in their "ordinary and popular sense," control judicial interpretation. AIU Ins. Co. v. Superior Court, 51 Cal.3d 807, 274 Cal.Rptr. 820, 829, 799 P.2d 1253, 1264 (1990). Using this standard, California courts have concluded that the phrase "sudden and accidental" is not ambiguous. Shell Oil Co. v. Winterthur Swiss Ins. Co., 12 Cal.App.4th 715, 15 Cal.Rptr.2d 815, 841 (1993); Truck Ins. Exch. v. Pozzuoli, 17 Cal.App.4th 856, 21 Cal.Rptr.2d 650, 651 (1993); ACL Technologies, Inc. v. Northbrook Prop. & Cas. Ins. Co., 17 Cal.App.4th 1773, 22 Cal.Rptr.2d 206, 213-14 (1993). Moreover, California courts have indicated that "sudden" connotes a temporal quality.

[A]ccidental conveys the sense of an unexpected or unintended event, while "sudden" conveys the sense of an unexpected event that is abrupt or immediate in nature. "Sudden and accidental" is not ambiguous if we give the words their full significance. A court should not make a phrase ambiguous by unreasonably truncating a word's meaning.

Shell Oil, 15 Cal.Rptr.2d at 841; ACL Technologies, 22 Cal.Rptr.2d at 214. Therefore, under California law, non-sudden, continuous pollution does not qualify as an exception to the pollution exclusion in this case. See Shell Oil, 15 Cal.Rptr.2d at...