South Macomb Disposal Authority v. American Ins. Co.

• Decision Date: 10 October 1997
• Docket Number: Docket Nos. 186277-186280 and 189612
• Citation: 572 N.W.2d 686,225 Mich.App. 635
• Parties: SOUTH MACOMB DISPOSAL AUTHORITY, Plaintiff-Appellee, v. AMERICAN INSURANCE COMPANY and National Surety Corporation, Defendants-Appellants, and Citizens Insurance Company, Westchester Fire Insurance Company and Michigan Municipal Risk Management Authority, Defendants. (On Remand) SOUTH MACOMB DISPOSAL AUTHORITY, Plaintiff-Appellee, v. WESTCHESTER FIRE INSURANCE COMPANY, Cranford Insurance Company, International Insurance Company, and National Surety Corporation, Defendants, and Citizens Insurance Company, Defendant-Appellant, and Evanston Insurance Company, Defendant. SOUTH MACOMB DISPOSAL AUTHORITY, Plaintiff-Appellee, v. WESTCHESTER FIRE INSURANCE COMPANY, Cranford Insurance Company, and International Insurance Company, Defendants, and National Surety Corporation, Defendant-Appellant, and Citizens Insurance Company and Evanston Insurance Company, Defendants. SOUTH MACOMB DISPOSAL AUTHORITY, Plaintiff-Appellee, v. AMERICAN INSURANCE COMPANY, National Surety Corporation, Westchester Fire Insurance Company, and Michigan Municipal Risk Management Authority, Defendants, and Citizens Insurance Company, Defendant-Appellant. SOUTH MACOMB DISPOSAL AUTHORITY, Plaintiff-Appellee, v. WESTCHESTER FIRE INSURANCE COMPANY, Defendant-Appellant, and Cranford Insurance Company, International Insurance Company, National Surety Corporation, Citizens Insurance Company, and Evanston Insurance Company, Defendants.
• Court: Court of Appeal of Michigan — District of US

Page 686

572 N.W.2d 686

225 Mich.App. 635

SOUTH MACOMB DISPOSAL AUTHORITY, Plaintiff-Appellee, v. AMERICAN INSURANCE COMPANY and National Surety Corporation,

Defendants-Appellants,

and

Citizens Insurance Company, Westchester Fire Insurance

Company and Michigan Municipal Risk Management

Authority, Defendants. (On Remand)

SOUTH MACOMB DISPOSAL AUTHORITY, Plaintiff-Appellee, v. WESTCHESTER FIRE INSURANCE COMPANY, Cranford Insurance

Company, International Insurance Company, and

National Surety Corporation, Defendants,

and

Citizens Insurance Company, Defendant-Appellant,

and

Evanston Insurance Company, Defendant.

SOUTH MACOMB DISPOSAL AUTHORITY, Plaintiff-Appellee, v. WESTCHESTER FIRE INSURANCE COMPANY, Cranford Insurance

Company, and International Insurance Company, Defendants,

and

National Surety Corporation, Defendant-Appellant,

and

Citizens Insurance Company and Evanston Insurance Company,

Defendants.

SOUTH MACOMB DISPOSAL AUTHORITY, Plaintiff-Appellee, v. AMERICAN INSURANCE COMPANY, National Surety Corporation,

Westchester Fire Insurance Company, and Michigan

Municipal Risk Management Authority, Defendants,

and

Citizens Insurance Company, Defendant-Appellant.

SOUTH MACOMB DISPOSAL AUTHORITY, Plaintiff-Appellee, v. WESTCHESTER FIRE INSURANCE COMPANY, Defendant-Appellant, and Cranford Insurance Company, International Insurance Company,

National Surety Corporation, Citizens Insurance

Company, and Evanston Insurance Company,

Defendants.

Docket Nos. 186277-186280 and 189612.

Court of Appeals of Michigan.

Submitted Aug. 22, 1996, at Detroit.

Decided Oct. 10, 1997, at 9:10 a.m.

Released for Publication Jan. 8, 1998.

Dykema Gossett PLLC by Roger K Timm and John A. Ferroli, Detroit, for plaintiff-appellee.

Rivkin, Radler & Kremer by Daniel A. Bartoldus and Joshua N. Krellen, Uniondale, NY, and Still, Nemier, Tolari & Landry, P.C. by Michelle E. Mathieu, Farmington Hills, for American Insurance Company and National Surety Corporation.

Crozier & Blais by Linda L. Blais, Spring Lake, for Citizens Insurance Company of America.

Sommers, Schwartz, Silver & Schwartz, P.C. by Leonard B. Schwartz and Patrick Burkett, Southfield, for Westchester Fire Insurance Company.

Before CORRIGAN, P.J., and JANSEN and M. WARSHAWSKY ^*, JJ.

ON REMAND

CORRIGAN, Presiding Judge.

These consolidated cases are before us on remand from our Supreme Court for consideration as on leave granted. South Macomb Disposal Authority v. American Ins. Co., 448 Mich. 947, 534 N.W.2d 530 (1995); South Macomb Disposal Authority v. Westchester Fire Ins. Co., 448 Mich. 947, 534 N.W.2d 531 (1995); South Macomb Disposal Authority v. Westchester Fire Ins. Co., 450 Mich. 873, 539 N.W.2d 504 (1995). Plaintiff, South Macomb Disposal Authority (SMDA), which operated several landfills, instituted these declaratory judgment actions to compel defendant insurers to defend claims brought against it. The claims arose from the leaking of some of plaintiff's landfills. The trial court concluded that certain of the defendants owed plaintiff a duty to defend with respect to the underlying claims based on personal injury, but denied in part defendants' motions for summary disposition insofar as they were based on the absence of an "occurrence" within the meaning of the policies or the applicability of the pollution exclusion clauses contained in insurance policies issued to plaintiff because of genuine questions of material fact concerning those issues. Together, these cases comprise seventy-three lower court files and many additional pleadings, exhibits, deposition transcripts, and videotapes. We affirm in part, reverse in part, and remand.

Among the other issues involved, these cases raise three issues of first impression: (1) whether an identifiable discharge properly may be separated from a larger pattern of discharge or leakage; (2) whether a personal injury liability endorsement provides coverage for the pollution claims of private plaintiffs where those claims otherwise are barred by a pollution exclusion clause in a comprehensive general liability policy; and (3) whether letters from the Michigan Department of Natural Resources (DNR) constitute a "suit" triggering insurance coverage.

To answer those questions, this opinion is structured as follows.

First, we set forth the underlying facts and procedural history. Next, we consider whether defendant Westchester Fire Insurance Company should have been granted summary disposition on the basis that there was no "occurrence" within the meaning of its policy and conclude that summary disposition should not have been granted because Westchester did not demonstrate sufficiently, under a subjective standard, that there was no occurrence. Additionally, we hold that certain letters from the DNR constituted a "suit," which triggered coverage under the defendants' policies.

We next examine the pollution exclusions and hold that the proper focus for determining whether a discharge was "sudden and accidental" is the discharge of pollutants from the landfill into the surrounding soils, groundwaters, and surface waters. We then discuss and reject the contention that plaintiff presented a genuine issue of material fact regarding other sources of contamination and hold that the distinct, identifiable discharges of leachate from the sides of one of the sites at issue may be considered separately from the overall leaking at the site.

Next, we reject plaintiff's argument that the personal injury liability endorsements afford plaintiff coverage outside the pollution exclusion. We thereafter address costs, holding that defense costs may include the costs of designing a plan for remediation of pollution. Also, we note that because questions of fact arose under the loss-in-progress doctrine, the circuit court properly denied summary disposition on this point. Finally, we conclude that plaintiff's waiver and estoppel argument against defendant Westchester should fail because Westchester did not misrepresent the policy terms to plaintiff.

I. UNDERLYING FACTS

These suits involve four municipal landfill sites, which were developed and operated at various times from the late 1960s to the mid-1980s. Sites 9 and 9A are located in Macomb Township. Sites 7 and 11 are located in Washington Township. During their operation and after their closure, leachate ¹ leaked from these landfills, polluting the surrounding soil and groundwater.

Plaintiff's declaratory judgment action in lower court number 84-002686CZ resulted from a lawsuit against plaintiff, captioned: Bielat v. SMDA, Macomb Circuit Court No. 84-612AA. In Bielat, residential property owners in the immediate vicinity of landfill sites 9 and 9A sued plaintiff, alleging personal injuries and property damage on theories of nuisance, trespass, and negligence. The DNR and the Michigan Department of Public Health (DPH), defendants in the Bielat action, cross-complained against plaintiff. Plaintiff filed the second declaratory judgment action, South Macomb Disposal Authority v. American Ins. Co., lower court number 90-001995CK, against the same insurer-defendants in response to letters plaintiff received from the DNR regarding contamination of groundwater at sites 7 and 11, which the DNR identified as having been caused by plaintiff's landfills.

A. Sites 9 and 9A

The circuit court set forth in great detail the complex history of sites 9 and 9A; we include only a summary of pertinent facts. The site 9 property, acquired in 1967, had been operated previously as a sand and gravel mine. Dr. Andrew Mozola, a geologist investigated the suitability of the site for use as a landfill. Plaintiff hired Warren Anderson, a civil engineering consultant, to design and maintain the landfill.

Soil boring tests indicated that the water table at the site ranged in depth from eleven feet to the surface. Mozola told plaintiff's director in 1967 that he was not enthusiastic about the site's use as a landfill. Mozola determined that the water table was high and that a leachate problem could develop if plaintiff used the property as a landfill. Mozola outlined several design considerations should the property be used as plaintiff proposed. State law required plaintiff to keep landfill operations at least two feet above the water table and to place six inches of compact suitable cover material over all exposed refuse at the end of each day. Plaintiff knew that, because of the previous sand mining, the site consisted of nearly thirty acres of low land with water pockets.

In April 1968, the DPH issued a license to plaintiff to operate the site as a landfill. The license stipulated that drainage effectiveness was to be reviewed after construction and that modifications to operations might be necessary, depending on watertable control. Within six months, plaintiff received unsatisfactory comments about its operation of the site. A Macomb County Health Department (MCHD) evaluation in September 1968 noted that the site was not approved because it was a burning, open dump. The MCHD ordered plaintiff to cover the material and stop dumping in the water. Groundwater problems occurred at site 9, which plaintiff worked to overcome. The site was licensed until it was closed in 1975.

Plaintiff sought to expand its landfill operations by including site 9A in 1971. Again, the DNR and the DPH specifically informed plaintiff about the foreseeable watertable problems at the site. Although the DPH licensed site 9A in February 1971, the license included stipulations regarding the replacement of sand, underdrain modifications, the construction of a perimeter clay dike and the placement of fill material not less than four feet above the subsurface drain. Site 9A was closed in 1979.

While site 9A was operating, specific complaints regarding leachate outbreaks arose. The first occurred in 1971, shortly after the site opened, and the second in June 1976. A third outbreak occurred in 1980. These outbreaks will be discussed...