Stamford Wallpaper Co., Inc. v. TIG Ins.

• Decision Date: 25 February 1998
• Docket Number: 1789,D,Nos. 1272,s. 1272
• Citation: 138 F.3d 75
• Parties: , 28 Envtl. L. Rep. 20,584 STAMFORD WALLPAPER COMPANY, INC., Plaintiff-Appellant-Cross-Appellee, v. TIG INSURANCE, formerly known as Transamerica Insurance Company, Defendant-Appellee-Cross-Appellant. ockets 96-9218, 96-9242.
• Court: U.S. Court of Appeals — Second Circuit

Page 75

138 F.3d 75

46 ERC 1889, 28 Envtl. L. Rep. 20,584

STAMFORD WALLPAPER COMPANY, INC., Plaintiff-Appellant-Cross-Appellee, v. TIG INSURANCE, formerly known as Transamerica Insurance Company, Defendant-Appellee-Cross-Appellant.

Nos. 1272, 1789, Dockets 96-9218, 96-9242.

United States Court of Appeals, Second Circuit.

Argued April 24, 1997.

Decided Feb. 25, 1998.

Leo Gold, Stamford, CT (Isadore M. Mackler, Mackler & Gold, on the brief), for Plaintiff-Appellant-Cross-Appellee.

Joel M. Fain, Hartford, CT (Michael F. Aylward, Ann Grunbeck Monaghan, Morrison, Mahoney & Miller, on the brief), for Defendant-Appellee-Cross-Appellant.

Before: OAKES and JACOBS, Circuit Judges, and STEIN, District Judge. ^*

JACOBS, Circuit Judge:

TIG Insurance ("TIG") has denied coverage on three liability claims submitted by its policyholder, plaintiff Stamford Wallpaper Company, Inc. ("Stamford"). The underlying liability claims arise out of: a third-party complaint seeking contribution from Stamford under the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") in a cost-recovery action for the clean-up of a landfill; and two letters from the Environmental Protection Agency ("EPA") informing Stamford that it is a potentially responsible party ("PRP") in connection with the disposal of hazardous waste at two other disposal sites (collectively, the "CERCLA claims"). Stamford brought this diversity action in the United States District Court for the District of Connecticut (Covello, J.), alleging that TIG has breached the comprehensive general liability insurance contract by disclaiming coverage and by refusing to defend.

In district court, Stamford moved for partial summary judgment limited to TIG's duty to defend. The district court denied that motion--and dismissed Stamford's breach of contract claim--on the ground that although the CERCLA claims against Stamford qualified under the insurance contract as "suits" seeking "damages," the pollution exclusion clause defeated coverage and relieved TIG of any duty to defend. The parties stipulated to the dismissal of the remainder of Stamford's claims, and the district court ordered the dismissal.

Stamford appeals the district court's decision with respect to the applicability of the pollution exclusion clause. TIG cross-appeals, arguing that the district court's decision should be affirmed regardless of any exclusion, because, under the policy term affording specified liability and defense coverage for suits seeking damages against the insured, a third party's demand that a policyholder clean up someone else's property does not seek "damages," and a PRP letter is not a "suit."

Each of these three questions is potentially dispositive: Stamford must prevail on all of them to trigger TIG's duty to defend all of the claims. In order to determine whether a claim letter is a "suit," or whether a third party's environmental cleanup demands can constitute "damages," we would be required to predict how the Connecticut Supreme Court would rule, or to certify the questions to that court. However, because this case can be decided on the basis of Connecticut law bearing on the scope of the pollution exclusion, we need not reach the other two issues. We assume, without deciding, that the underlying claims constitute "suits" seeking "damages." We nevertheless affirm the denial of summary judgment and the dismissal of Stamford's breach of contract claim on the ground that the pollution exclusion clause defeats any duty to defend. TIG's cross-appeal is dismissed as moot.

BACKGROUND

This Court has jurisdiction under 28 U.S.C. § 1291. On an appeal of the dismissal of a claim under Federal Rule of Civil Procedure 12(b)(6), we assume the truth of the allegations in the complaint, Romney v. Lin, 94 F.3d 74, 77 (2d Cir.1996), cert. denied, --- U.S. ----, 118 S.Ct. 263, 139 L.Ed.2d 189 (1997), which we summarize here. Stamford is a Connecticut corporation with offices in Stamford, Connecticut. From 1970 until 1983, the company used liquid mineral spirits, which generate waste solvents, in its wallpaper manufacturing process. Beginning in 1974, Stamford contracted for the removal of the waste solvents with Drum Each of the three carters retained by Stamford has been alleged to be a source of hazardous waste at one or more of three sites designated by the EPA as hazardous landfills: the Davis Landfill in Smithfield, Rhode Island; Gallups Quarry in Plainfield, Connecticut; and Solvents Recovery Service of New England in Southington, Connecticut. Stamford asserts that none of the residual by-products of its waste were commingled with other waste materials or deposited at any of these three sites.

Automation, Inc., Chemical Waste Removal Service, Inc., and Solvents Recovery Service of New England (collectively, the "carters"). The carters recycled these waste materials and sold them, back to Stamford as well as to third parties.

Nonetheless, Stamford may be liable for cleanup costs at one or more of these sites. On June 12, 1992, the EPA sent Stamford a PRP letter notifying the company of its potential liability under CERCLA for response action costs of $3,350,000 at Solvents Recovery Service in Southington, Connecticut. Stamford was named as a third-party defendant in United States v. Davis, Civ. No. 90-0484-P (D.R.I. filed Feb. 22, 1993), a CERCLA cost-recovery action arising from the clean-up of the Davis Landfill in Rhode Island, on February 22, 1993. Finally, on April 1, 1993, the EPA issued another PRP letter, notifying Stamford of its potential liability for response action costs of $257,441 in connection with the cleanup of Gallups Quarry in Plainfield, Connecticut.

Stamford purchased Comprehensive General Liability ("CGL") insurance from TIG, a New York corporation headquartered in Texas. The coverage terms of the CGL policy (the "policy") did not vary from 1974 to 1983, the relevant time period in this action. Under the policy, TIG has the "right and duty to defend any suit against the insured seeking damages on account of ... bodily injury or property damage [to which this insurance applies], even if any of the allegations of the suit are groundless, false or fraudulent."

The policy also contains a standard "pollution exclusion" clause. This clause excludes from coverage any liability for

bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental.

TIG thus has no duty to indemnify or defend Stamford against claims arising from the discharge of pollutants, unless the discharge is within the "sudden and accidental" exception. This clause is familiar language in CGL contracts of this vintage, and the language of this clause has been the subject of much litigation, both in Connecticut and elsewhere.

On June 16, 1993, Stamford notified TIG of the claims that had been filed against Stamford in the Davis action. By letter dated December 14, 1993, TIG invoked the policy's pollution exclusion clause, and disclaimed any duty to defend or indemnify Stamford with respect to claims arising from any of the three sites. Stamford sued TIG in Connecticut state court on December 8, 1994, seeking damages for breach of contract. Four weeks later, TIG removed the case to the United States District Court for the District of Connecticut on the basis of 28 U.S.C. §§ 1332 and 1441. Stamford moved for partial summary judgment on the limited question of TIG's duty to defend it against the environmental claims.

The district court held, inter alia, that all of the allegations made against Stamford with respect to each of the three sites fell within the scope of the policy's pollution exclusion; that none of the allegations brought the claims within the "sudden and accidental" exception; that therefore none of the CERCLA claims were for bodily injury or property damage covered by the policy; and that absent coverage, TIG had no duty to defend Stamford against those allegations. Plaintiff's motion for partial summary judgment was denied and its breach of contract claim was dismissed.

DISCUSSION

The district court had subject matter jurisdiction pursuant to 28 U.S.C. § 1332 and applied the substantive law of the state of Connecticut to this diversity action. See GNOC, Corp. v. Endico, 876 F.2d 1076, 1078 (2d Cir.1989) (citing Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78-80, 58 S.Ct. 817, 822-23, 82 L.Ed. 1188 (1938)). (Specifically, we apply state law to determine the applicability of an insurance policy to an action brought under CERCLA. New York v. Blank, 27 F.3d 783, 788 (2d Cir.1994).) A district court's summary dismissal of a claim is reviewed de novo. McCarthy v. Olin Corp., 119 F.3d 148, 152 (2d Cir.1997).

Under Connecticut law, an insurer's duty to defend is broader than its duty to indemnify. "The general rule is [that] if an allegation of the complaint falls even possibly within the coverage, then the insurance company must defend the insured." West Haven v. Commercial Union Ins. Co., 894 F.2d 540, 544 (2d Cir.1990) (citations and internal quotation marks omitted) (applying Connecticut law). "Where a complaint in an action ... states a cause of action against the insured which appears to bring the claimed injury within the policy coverage, it is the contractual duty of the insurer to defend the insured in that action ... regardless of the duty of the insurer to indemnify." Keithan v. Massachusetts Bonding and Ins. Co., 159 Conn. 128, 267 A.2d 660, 665-66 (1970). The existence of a duty to defend is determined on the basis of what is found within the four corners of the complaint; it is "not affected by facts disclosed by...