Textron, Inc. v. Aetna Cas. & Sur. Co.

• Decision Date: 11 March 1994
• Docket Number: No. 92-650-A,92-650-A
• Parties: TEXTRON, INC. v. AETNA CASUALTY AND SURETY COMPANY et al. ppeal.
• Court: Rhode Island Supreme Court

Page 537

638 A.2d 537

TEXTRON, INC. v. AETNA CASUALTY AND SURETY COMPANY et al.

No. 92-650-Appeal.

Supreme Court of Rhode Island.

March 11, 1994.

John F. Bomster (argued), John A. Tarantino, W. James McKay, Victoria M. Almeida, W. Mark Russo, Sherry A. Guarrusso, Adler Pollock & Sheehan Incorporated, Providence, for plaintiff.

Mark C. Hadden, Gidley, Sarli & Marusak, Providence, Allan B. Taylor (argued), Day, Berry & Howard, Hartford, CT, for defendant.

OPINION

MURRAY, Justice.

This case comes before this court on the appeal of the plaintiff, Textron, Inc. (Textron), from a Superior Court's granting of partial summary judgment in favor of the defendant, Aetna Casualty and Surety Company (Aetna), pursuant to Rule 56(c) of the Superior Court Rules of Civil Procedure.

The gravamen of this appeal is whether Textron possesses insurance coverage under certain comprehensive general-liability insurance policies issued to it by Aetna for claims asserted against it in connection with the cleanup of environmental contamination at a location acquired by Textron. The parties do not dispute that Textron had valid insurance policies in effect at the time of the contaminations; however, the dispute centers on whether the insurance policies' definition of the term "named insured" invoked the insurance policies' coverage. Textron seeks the enforcement of a defense and indemnification clause in the insurance agreements.

The facts underlying this insurance-contract-interpretation dispute are as follows. Aetna has provided insurance for Textron for a number of years; however, for purposes of this appeal, only the policies issued from 1969 through 1979 are at issue. Each policy defined its "policy period" as commencing at 12:01 a.m. on January 1 of the year in which the policy became effective until 12:01 a.m. of the ensuing January 1.

In November 1980 Textron signed an agreement to acquire Basic Microelectronics, Inc. (BMI), located in Lake Park, Florida. The formal acquisition was completed on January 9, 1981. For the purposes of the insurance agreements under review, Textron acquired the location subsequent to the alleged occurrence of certain activities that led to environmental infractions. Textron owned and operated the BMI facility from January 1981 to December 1985. In November 1983 the Florida Department of Environmental Regulation (FDER) issued a violation notice to BMI indicating that certain operations at the BMI site had allegedly contaminated the surrounding ground water.

As a result of the environmental contaminations, Textron entered into three consent agreements, two with the FDER and one with the United States Government pursuant to the Comprehensive Environmental Response Compensation and Liability Act of 1980, 42 U.S.C. § 9601 through § 9675 (CERCLA), to clean up the BMI site. It is the function of CERCLA to impose joint and several liability upon an owner of property or a potentially responsible party for environmental property damage. Id. at § 9607. As of June 1988 Textron had incurred some $500,000 in cleanup costs with regard to the BMI site, and Textron alleges that these costs could escalate to more than $2 million.

In granting defendant's motion for summary judgment, the motion justice found that the Aetna policies covered Textron and other companies owned or operated by Textron during the 1969 through 1979 policy periods. Relying on the fact that Textron did not own or operate BMI during that period, the motion justice granted summary judgment in favor of Aetna.

Textron contends that the motion justice erred as a matter of law by holding that it was not covered by the Aetna policies for the property damage that took place at the BMI site during the years 1969 through 1979. Textron avers that a strict reading of the explicit language of the insurance policies demonstrates that coverage exists. Textron also contends that even if the policies were deemed to be ambiguous, it must still prevail because precedent dictates that ambiguities in insurance contracts are to be construed in the manner most favorable to the policyholder.

Aetna contends that the motion justice correctly construed the insurance policies in order to effectuate their purpose and the parties' intent. Aetna asserts that since Textron neither caused the damage nor owned the property during the policies' periods, the policies do not cover the claims for which Textron seeks indemnification and defense.

When considering an appeal of a grant of summary judgment, this court employs the same standard and rules that the trial justice applied in evaluating the motion. Holliston Mills, Inc. v. Citizens Trust Co., 604 A.2d 331, 334 (R.I.1992). We examine the pleadings and affidavits in the light most favorable to the nonmoving party to decide whether an issue of material fact existed and whether the moving party was entitled to summary judgment as a matter of law. Id. at 334-35. "Summary judgment is proper when there is no ambiguity as a matter of law." Id. at 334. A party opposing a motion for summary judgment must assert facts that "raise a genuine issue to be resolved." Id. at 335.

The limited issue before this court is whether a comprehensive general-liability insurance policy covers property damage arising as a result of conduct of a third party at a time when the insured had no nexus to the property or the third party. We must turn to the language of the insurance agreements in search of our answer. The determination of coverage must be based solely upon the language contained in the Aetna policies.

It is a well-settled rule that this court is bound to follow the rules for the construction of contracts when interpreting the terms of an insurance policy. Malo v. Aetna Casualty and Surety Co., 459 A.2d 954, 956 (R.I.1983). The language contained in a policy must be given its plain and ordinary meaning. Id. "When the terms are found to be clear and unambiguous, the task of judicial construction is at an end. The contract terms must then be applied as written and the parties are bound by them." Id. Before this court can construe the terms of an insurance policy, we must first find that an ambiguity exists. Amica Mutual Insurance Co. v. Streicker, 583 A.2d 550, 551-52 (R.I.1990). In our analysis to determine whether an ambiguity exists, we view the insurance policy as a whole and in its entirety. Id. at 552. When this court finds that an ambiguity exists or that the terms of an insurance contract are subject to more than one reasonable interpretation, the insurance contract will be strictly construed against the insurer. Id. "A court should not, however, stretch its imagination in order to read ambiguity into a policy where none is present." Mullins v. Federal Dairy Co., 568 A.2d 759, 762 (R.I.1990).

Given these principles of insurance-contract construction, we now examine the policies' provisions. The policies begin by stating that

"[t]he company [Aetna] will pay on behalf of the insured all sums which the insured shall become legally obliged to pay as damages because of bodily injury or

property damage

to which this insurance applies, caused by an occurrence, and the company shall have the right and duty to defend any suit against the insured seeking damages on account of such bodily injury or property damage * * *."

The parties do not argue over the interpretation of this defense and indemnification section of the insurance agreement. The main dispute revolves around the language of the named-insured section of the policies. The named-insured segment of the policies states that

" '[n]amed insured ' means the persons or organizations designated in [the declarations page] and also any subsidiary company (including subsidiaries thereof) or entity o[f] such named insured now existing or which such named insured may acquire, organize or control during the policy period * * *." (Emphasis added.)

Textron contends that although the named-insured section of the policies does limit coverage for liability claims asserted against after-acquired subsidiaries because of the "during the policy period" language, that language does not apply to Textron itself. Textron argues that this "temporal limitation" does not operate to "engraft upon the policy a freeze-frame definition of Textron." Textron avers that the fundamental flaw in Aetna's argument is that it ignores the fact that the liability for which coverage is sought is against Textron itself, on the basis of the strict liability imposed under CERCLA. Textron asserts that as an owner of the property it has the legal obligation to absorb the cleanup costs and thus incur liability under the policies, not a subsidiary or other entity falling within the limiting language of the policies. Textron concludes coverage should exist because it has incurred a liability from property damage during a policy period. In summary Textron accuses Aetna of treating its own policies' language as "an unwanted orphan" at its doorstep.

Aetna contends that the insurance policies limit liability coverage to property owned or acquired during the policies' periods. It contends that during the effective dates of all the policies under review, BMI was a "total stranger" to the policies. Consequently, Aetna concludes, since Textron did not own or control BMI from 1969 through 1979, BMI was not an "insured" under the insurance policies in effect.

Because this court has never specifically addressed this narrow issue, we look for guidance to other jurisdictions that have analyzed similar situations. Although we have discovered many reported decisions and secondary authorities on the ramifications of CERCLA, we note that the limited issue now before us has not been widely addressed in reported decisions.

Although our analysis is limited to the reasonable interpretation of the insurance-contract language, we are persuaded by the reasoning of Upjohn Co. v. Aetna Casualty and Surety Co. The facts of Upjohn are...