Syntex Corp. v. Lowsley-Williams & Cos.

• Decision Date: 10 November 1998
• Docket Number: No. A076964,LOWSLEY-WILLIAMS,A076964
• Citation: 79 Cal.Rptr.2d 371,67 Cal.App.4th 871
• Court: California Court of Appeals
• Parties: Previously published at 67 Cal.App.4th 871 67 Cal.App.4th 871, 98-2 USTC P 8350, 98 Cal. Daily Op. Serv. 8350, 98 Daily Journal D.A.R. 11,562 SYNTEX CORPORATION et al., Plaintiffs and Respondents, v.AND COMPANIES et al., Defendants and Appellants.

Page 371

79 Cal.Rptr.2d 371

Previously published at 67 Cal.App.4th 871

67 Cal.App.4th 871, 98-2 USTC P 8350,

98 Cal. Daily Op. Serv. 8350,

98 Daily Journal D.A.R. 11,562

SYNTEX CORPORATION et al., Plaintiffs and Respondents, v. LOWSLEY-WILLIAMS AND COMPANIES et al., Defendants and Appellants.

No. A076964.

Court of Appeal, First District, Division 3, California.

Nov. 10, 1998.

As Modified on Denial of Rehearing Dec. 9, 1998.

Review Granted Feb. 24, 1999.

Heller, Ehrman, White & McAuliffe, Barry S. Levin, Jonathan P. Hayden, Dale A. Rice, A. Mari Mazour, Christine R. Saunders, San Francisco, for Plaintiffs and Respondents.

Hancock, Rothert & Bunshoft, Paul D. Nelson, Paul J. Killion, Eve F. Lynch, Suzanne R. Fogarty, Monica M. Slakey, San Francisco, for Defendants and Appellants.

WALKER, J.

Appellants, certain syndicates at Lloyd's of London and 71 London market and foreign insurance companies (London Insurers), appeal the judgment following a jury trial determining that they were responsible for the environmental cleanup costs incurred by Syntex Corporation and its subsidiaries (Syntex). London Insurers contend that the trial court erred by: (1) misinterpreting the pollution exclusion clauses of the 1973-1984 insurance policies providing coverage to Syntex and subsequently denying London Insurers' motion for judgment notwithstanding the verdict (JNOV) based on the pollution exclusion clauses; (2) instructing the jury that the 1970-1973 insurance policy was "triggered" as a matter of law based on allegations in the underlying complaints and claims, and by failing to instruct the jury on Syntex's burden to prove property damage; (3) instructing the jury that Syntex did not expect damage under the 1970-1973 policy unless those persons in Syntex "with the power to bind the corporation" expected property damage; (4) refusing to instruct the jury that property damage is expected under the 1970-1973 policy if Syntex "expected" any degree of damage; and (5) determining that the insurers are obliged to pay "all sums" for the damages resulting from a covered "occurrence" under the 1970-1973 policy, even those damages arising beyond the policy period. We agree with London Insurers that the trial court erred by denying the motion for a JNOV with respect to the pollution exclusion clauses in the 1973-1984 policies, and that the trial court erred by its trigger and burden of proof instructions, its "power to bind" instruction, and its degree of damage instruction. We find no error in the "all sums" ruling. We reverse the judgment against London Insurers with respect to the 1973-1984 policies, and remand for entry of judgment in their favor on these policies. We reverse the judgment against London Insurers with respect to the 1970-1973 policy, and remand for a new trial on the factual issues relating to that policy. ¹

BACKGROUND

I. The Insurance Policies

London Insurers issued excess umbrella insurance policies to Syntex, a California pharmaceutical company, from August 1970 to August 1984. All of the insurance policies contained "occurrence clauses," which provided that London Insurers would, subject to certain limitations and conditions, "indemnify [Syntex] for all sums which [Syntex] shall be obligated to pay by reason of the liability [p] ... imposed upon [Syntex] by law ... [p] ... [p] for damages, direct or consequential and expenses on account of ... [p] ... [p] ... Property Damage, [p] ... [p] caused by or arising out of each occurrence happening anywhere in the world, and arising out of the hazards covered by and as defined in the Underlying Umbrella Policies...." "Occurrence" was defined in most of the policies ² as "an accident or a happening or event or a continuous or repeated exposure to conditions which unexpectedly and unintentionally results in personal injury, property damage or advertising liability during the policy period."

From 1973 through 1984, all of the London Insurers' policies contained exclusions barring coverage for pollution-related liability. From August 1973 until August 1981, the policies barred recovery for personal injury, property damage, or the costs of clean up attributed to "seepage, pollution or contamination" except where the "seepage, pollution or contamination is caused by a sudden, unintended and unexpected happening during the period of this insurance." (Italics added.) From August 1981 to August 1984, the policies barred recovery for personal injury or property damages "arising out of the discharge, dispersal, release or escape of ... toxic chemicals, liquids or gases, waste materials or other ... contaminants or pollutants ..., but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental." (Italics added.)

II. The Missouri Pollution

In 1969, Syntex acquired Hoffman-Taff, Inc. (Hoffman-Taff), a Missouri chemical company that produced Agent Orange for the United States government for use in the Vietnam war. Also in 1969, after Hoffman-Taff stopped producing Agent Orange, Northeastern Pharmaceutical & Chemical Co. (NEPACCO) leased part of a building in Verona Missouri and equipment belonging to Hoffman-Taff that had been used for Agent Orange production. NEPACCO began manufacturing hexachlorophene, a disinfectant widely used as an antibacterial agent by hospitals and in soap. NEPACCO's process for making hexachlorophene involved many of the same steps used in producing Agent Orange. The process produced waste residues, called "still bottoms," which contained dioxin, an extremely toxic chemical.

In 1971, NEPACCO hired Independent Petrochemical Corp. (IPC) to dispose of the toxic still bottoms. IPC in turn arranged for Russell Bliss to collect the still bottoms and dispose of them. Bliss was in the waste oil business, collecting used oil from gas stations and other locations and selling it to refineries or using it as a dust suppressant on roads, parking lots, and horse arenas. Bliss removed six 3,000-gallon loads of still bottoms from the NEPACCO plant in 1971. Part of the first load of still bottoms was sold to a refinery, but a portion of it was sprayed directly from the hauling truck onto an indoor horse arena, killing horses, dogs, cats, and birds, and injuring several people. Bliss mixed portions of subsequent loads of the still bottoms with other waste oil and sprayed roads, horse arenas, and parking lots throughout eastern Missouri during the summers of 1971 and 1972, including the streets in the town of Times Beach.

During 1971, Dewey Vanderhoof was a Hoffman-Taff area supervisor working in the Verona, Missouri, building Hoffman-Taff shared with its lessee, NEPACCO. At some point in 1971, while Bliss was engaged in removing still bottoms from NEPACCO, Vanderhoof learned from a conversation with a NEPACCO plant manager that Bliss was collecting NEPACCO's still bottoms, mixing them with waste oil, and using the mixture as a dust suppressant on roads. Vanderhoof did not report this information to anyone else at Hoffman-Taff, and he thought Bliss's activities were generally known. Although Vanderhoof understood that contact with still bottoms should be avoided, as with any chemical, he did not think that the still bottom mixture was so toxic that spraying roads or parking lots with the substance was wrong or dangerous. Richard Bagby, Hoffman-Taff's plant manager in Verona, was responsible for the premises and was the liaison between Hoffman-Taff and NEPACCO. He did not know about Bliss collecting still bottoms from NEPACCO before 1974. Bagby knew in August 1971 that NEPACCO produced toxic waste containing chlorinated hydrocarbons, including dioxin. Godfrey Moll, Hoffman-Taff's vice president of operations, knew that NEPACCO was producing toxic still bottoms as waste, but he did not know what they were doing with the still bottoms.

Bliss's sprayings contaminated more than two dozen different locations, including three sites where soil was dumped after it was excavated from locations Bliss had previously sprayed or where previously contaminated soil migrated due to erosion and rain run-off.

III. The Underlying Claims and Proceedings in the Trial Court

Bliss's release of dioxin-laden material caused property damage and bodily injury, and resulted in scores of personal injury lawsuits involving claims by more than 2,500 people seeking more than $15 billion in damages from Syntex. Syntex settled these lawsuits for $29 million. The State of Missouri and the United States also sued Syntex, contending that Syntex was liable for the clean up of the soil contaminated by Bliss. ³ Syntex settled these lawsuits also, and agreed to pay the United States $10 million and help clean up Times Beach and the other contaminated sites.

Hartford Insurance Company, Syntex's primary insurer, filed this action in 1985 seeking declaratory relief with respect to Syntex and its other insurers. Syntex answered the complaint in 1990 and filed a cross-complaint against all its primary and excess insurers, including London Insurers. Syntex sought a judicial declaration that London Insurers were obligated to indemnify Syntex for settling the environmental clean-up claims by the federal government and the State of Missouri, and the personal injury claims based on the Bliss dioxin contamination. The trial court bifurcated the trial. Phase I was a bench trial in which the court heard evidence and interpreted the terms of the insurance contracts. The trial court's legal determinations in phase I were incorporated into the jury instructions for the next phase of the proceedings. Phase II was a jury trial to adduce evidence pertinent to the issues raised in this appeal. Following phase I, Syntex settled with nearly all insurers except London Insurers, and Syntex also dropped any allegations that London Insurers were obligated to indemnify Syntex for the private personal injury claims. Thus, at the beginning of phase II, Syntex sought a judicial...