Towns v. Northern Sec. Ins. Co.

• Decision Date: 01 August 2008
• Docket Number: No. 07-089.,07-089.
• Citation: 964 A.2d 1150,2008 VT 98
• Parties: Richard TOWNS v. NORTHERN SECURITY INSURANCE COMPANY.
• Court: Vermont Supreme Court

964 A.2d 1150

2008 VT 98

Richard TOWNS v. NORTHERN SECURITY INSURANCE COMPANY.

No. 07-089.

Supreme Court of Vermont.

August 1, 2008.

John L. Franco, Jr., Burlington, for Plaintiff-Appellant/Cross-Appellee.

Robert A. Mello of Law Office of Robert A. Mello, PLC, South Burlington, for Defendant-Appellee/Cross-Appellant.

Present: REIBER, C.J., DOOLEY, JOHNSON, SKOGLUND and BURGESS, JJ.

JOHNSON, J.

¶ 1. This is the latest appeal in a long-running dispute over the remediation of environmental contamination of a property formerly owned by plaintiff/appellant Richard Towns in the Town of Johnson. The parties have cross-appealed from a series of trial court rulings relating to the availability of insurance coverage for the costs of investigation and abatement of the contamination under a policy issued by defendant/cross-appellant Northern Security Insurance Company (Northern) for a period of several years in the 1980s. The parties' claims include assertions that the trial court erroneously: (1) granted summary judgment in favor of Northern on the basis of the policy's business-pursuits exclusion; (2) rejected Northern's claim that continuous exposure to contamination during the policy period, which was discovered after the policy had expired, was insufficient to trigger coverage; (3) apportioned defense and indemnity costs between Towns and Northern based on the percentage of time spent on the risk; and (4) rejected Northern's claim that Towns's suit was barred by the doctrine of res judicata. Although not addressed by the trial court, claims based on the owned-property exclusion and prompt-notice provisions of the policy are also raised. For the reasons set forth below, we affirm in part, reverse in part, and remand for further proceedings.

¶ 2. The underlying facts and procedural history may be summarized as follows. Towns resided at the property in Johnson from 1972 to 1987. During this time, he diverted a substantial amount of waste and debris from his waste-hauling business to the property for use as fill to level a steep embankment and create a safer and larger rear lot. He also used some of the debris to fill a small swimming hole in front of the property. Towns continued to deposit debris at the property until he sold it in June 1987. Thereafter, the new owners, concerned about the fill, contacted the Attorney General's Office which—after much delay—resulted in an administrative order in September 1996, alleging that Towns had effectively operated a solid-waste facility at the site without certification in violation of 10 V.S.A. § 6605(a). The order required Towns to hire an environmental consultant to develop a site-remediation plan, remove the solid waste, and restore the site with clean fill.

¶ 3. The Environmental Court affirmed the administrative order, and Towns appealed to this Court.¹ Without reaching the merits of the alleged violation, we reversed the judgment and remanded to the Environmental Court for essential findings and conclusions concerning Towns's statute-of-limitations defense. Agency of Natural Res. v. Towns, 168 Vt. 449, 454, 724 A.2d 1022, 1025 (1998) (Towns I). The Environmental Court rejected the statute-of-limitations claim on remand, and we subsequently affirmed the judgment in its entirety. Agency of Natural Res. v. Towns, 173 Vt. 552, 557, 790 A.2d 450, 456 (2001) (mem.) (Towns II).

¶ 4. While these matters were proceeding, Towns was also engaged in litigation with his homeowner's-insurance providers, seeking coverage for the defense and cleanup costs incurred in the underlying environmental-enforcement action. Towns's initial effort in this regard was a lawsuit, filed in June 1997, against Vermont Mutual Insurance Company, which had issued a homeowner's policy for a residence in Morrisville that Towns occupied after he sold the Johnson property in June 1987. The trial court entered summary judgment in favor of Vermont Mutual, rejecting Towns's claim that the policy somehow covered the Johnson property, and we affirmed. Towns v. Vt. Mut. Ins. Co., 169 Vt. 545, 545, 726 A.2d 65, 67 (1999) (mem.) (Towns III).

¶ 5. After a period of some delay (discussed more fully in Part IV, infra), Towns then filed this action against Northern for defense and indemnification costs based on a policy covering the Johnson property from November 1983 to June 1987. Northern, in response, moved to dismiss the complaint, alleging that the claims should have been raised in the earlier Vermont Mutual litigation and were therefore barred by the doctrine of res judicata. The trial court (Judge Martin presiding) denied the motion, finding a lack of identity between the parties and subject matter, and noting in particular that the case against Northern was based on a "wholly different [insurance] contract" from the one at issue in the earlier proceeding. The parties then filed cross-motions for summary judgment, focused principally on the duty to defend. Northern claimed that coverage was foreclosed as a matter of law on the basis of several policy exclusions, including the business-pursuits and owned-property exclusions. Citing the general principle that the duty to defend is broader than the duty to indemnify, the court (Judge Martin presiding) found that the facts alleged were sufficient to create the potential for coverage, and thereby activate the contractual duty to defend. See City of Burlington v. Nat'l Union Fire Ins. Co., 163 Vt. 124, 127, 655 A.2d 719, 721 (1994) ("If any claims are potentially covered by the policy, the insurer has a duty to defend.").

¶ 6. Following a period of additional discovery and briefing, during which time groundwater contamination was discovered underlying the Johnson property, the court (Judge Katz presiding) issued a decision adopting the so-called "continuous trigger" theory, under which damage from continuous exposure to contaminants during the policy period is an "occurrence" sufficient to trigger coverage. Based on expert evidence showing continuous leakage of hazardous chemicals from the debris into the soil and groundwater underlying Towns's property during the policy period, the court concluded that the policy had been triggered. In a follow-up decision, the court also rejected Northern's claim that groundwater contamination must exceed state or federal enforcement standards to be considered property damage under the policy and denied Towns's motion to hold Northern responsible for all defense and indemnification costs, instead applying a pro rata allocation based upon each party's "time on the risk." Based on this ruling, the court (Judge Toor presiding) subsequently calculated that Towns was responsible for 75% of the defense and indemnity costs (based on the time that he was self-insured in relation to the period that he owned the property) and Northern was responsible for 25%.²

¶ 7. A new round of summary judgment motions followed, resulting in a written decision in January 2007. Although Northern claimed that coverage was barred on several grounds, including the owned-property and prompt-notice provisions of the policy, the court (Judge Teachout presiding) ruled that the business-pursuits exclusion precluded coverage as a matter of law and did not address the other arguments. The court found that Towns's use of the debris for personal, nonbusiness purposes (the filling and leveling of his lot) was immaterial because the debris originated from the business and "[d]umping the trash"—regardless of location or purpose—"was an ordinary part of [the] business." Accordingly, the trial court ruled that Northern owed no duty to defend or indemnify Towns as a matter of law, and entered final judgment for Northern. Both parties have appealed, renewing each of the various claims raised below.

I.

¶ 8. We review a summary judgment applying the same standard as the trial court, and will uphold such a judgment if there are no genuine issues of material fact and the moving party is entitled to judgment as a matter of law. Fireman's Fund Ins. Co. v. CNA Ins. Co., 2004 VT 93, ¶ 8, 177 Vt. 215, 862 A.2d 251. Similarly, the interpretation of the terms of an insurance contract presents a question of law, not fact, and our review is therefore "plenary, and nondeferential." Concord Gen. Mut. Ins. Co. v. Madore, 2005 VT 70, ¶ 9, 178 Vt. 281, 882 A.2d 1152.

¶ 9. Towns first contends that the trial court erred in concluding that the so-called business-pursuits exclusion bars coverage. The policy contains a standard exclusion denying coverage for bodily injury or damage "arising out of business pursuits of any insured or the rental or holding for rental of any part of any premises by any insured." This exclusion is subject, in turn, to a standard exception for "activities which are ordinarily incident to nonbusiness pursuits." Identical or substantially similar policy provisions have been the subject of considerable litigation in this and other jurisdictions, although "[n]early all of the courts have found the language difficult of interpretation and application." Robinson v. Utica Mut. Ins. Co., 585 S.W.2d 593, 595 (Tenn.1979); see generally K. Abraham, Environmental Liability and the Limits of Insurance, 88 Colum. L.Rev. 942, 966 (1988) (discussing cases and observing that "[d]ecisions regarding the applicability of the owned-property exclusion to the costs of cleanup are by no means uniform"); D. Marchitelli, Construction and Application of "Business Pursuits" Exclusion Provision in General Liability Policy, 35 A.L.R.5th 375 (1996) (collecting cases). We have recognized, nevertheless, that the exception for "nonbusiness" pursuits operates to narrow the business-pursuits exclusion by essentially restoring coverage to some activities that admittedly "arise" out of the insured's business. See Vt. Mut. Ins. Co. v. Gambell, 166 Vt. 595, 596, 689 A.2d 453, 454 (1997) (mem.) (exception for nonbusiness pursuits should be read as providing that "coverage will be extended...