TRAVELERS CAS. AND SURETY CO. v. Ribi Immunochem Research, Inc.

• Citation: 2005 MT 50,326 Mont. 174,108 P.3d 469
• Decision Date: 01 March 2005
• Docket Number: No. 04-228.,04-228.
• Parties: TRAVELERS CASUALTY AND SURETY COMPANY, a foreign corporation, Plaintiff, Respondent and Cross-Appellant, v. RIBI IMMUNOCHEM RESEARCH, INC., a Delaware corporation, Defendant and Appellant.
• Court: United States State Supreme Court of Montana

108 P.3d 469

2005 MT 50

326 Mont. 174

TRAVELERS CASUALTY AND SURETY COMPANY, a foreign corporation, Plaintiff, Respondent and Cross-Appellant, v. RIBI IMMUNOCHEM RESEARCH, INC., a Delaware corporation, Defendant and Appellant.

No. 04-228.

Supreme Court of Montana.

Submitted on Briefs January 11, 2005.

Decided March 1, 2005.

Rehearing Denied March 30, 2005.

J. Daniel Hoven, Browning, Kaleczyc, Berry and Hoven, P.C., Helena, MT Michael R. Wrenn, Daniel A. Zariski, Samuel R. Watkins, Heller Ehrman White & McAuliffe, LLP, Seattle, WA, for Appellant.

Ronald A. Bender, Worden Thane, P.C., Missoula, MT Thomas S. James, Jr., Jessica L. Goldman, Summit Law Group, PLLC, Seattle, WA, for Respondent.

R. Allan Payne, Special Assistant Attorney General, Doney, Crowley, Bloomquist & Uda, P.C., Helena, MT, for Amicus Montana Petroleum Tank Release Compensation Board.

Julie A. Johnson, Teri A. Walter, Gough, Shanahan, Johnson and Waterman, Helena, MT, for Amicus Complex Insurance Claims Litigation Association.

Justice BRIAN MORRIS delivered the Opinion of the Court.

¶ 1 We must determine whether a comprehensive general liability (CGL) policy provides coverage for environmental damage caused by the intentional disposal of hazardous wastes into a landfill that results in the unintentional migration of the wastes into the groundwater. The Twenty-First Judicial District Court, Ravalli County, found that the policy's pollution exclusion bars coverage for the environmental contamination due to the intentional nature of the dumping. We affirm the District Court's decision to deny coverage to Ribi Immunochen Research, Inc. (Ribi) under a CGL policy provided by Travelers Casualty and Surety Company (Travelers).

¶ 2 The parties raise numerous arguments on appeal and cross-appeal, but we need address only the following issues to resolve this matter:

¶ 3 1. Whether the District Court erred in determining that the CGL policy's pollution exclusion provision bars coverage for Ribi's hazardous waste disposal in that the disposal was not "sudden or accidental."

¶ 4 2. Whether the District Court erred in determining Travelers had no duty to defend Ribi against claims brought by third-parties for cleanup costs.

¶ 5 3. Whether the District Court erred in determining that Travelers may recoup its defense costs expended on Ribi's behalf for those claims that the District Court ultimately determined were barred by the CGL policy's pollution exclusion.

¶ 6 4. Whether the District Court erred in ordering Travelers to pay attorneys' fees that Ribi incurred in litigating pre-trial discovery motions.

¶ 7 Ribi also appeals the District Court's dismissal of its contract-based claims against Travelers, including breach of the duty of good faith and fair dealing and violations of the Unfair Claims Settlement Practices Act. We need not reach these issues, however, as our decision to affirm the District Court's conclusions denying coverage for Ribi's environmental contamination makes review of these matters unnecessary. See Story v. City of Bozeman (1990), 242 Mont. 436, 791 P.2d 767 (holding that breach of good faith and fair dealing claim requires showing of breach of contract); see also § 33-18-242(5), MCA (an insurer may not be held liable under the Unfair Claims Settlement Practices Act if the insurer had a reasonable basis in law or in fact for contesting the claim). Similarly, we resolve Travelers's narrow cross-appeal question regarding which party bears the burden of proving an "occurrence" within the context of our analysis of the broader burden of proof discussion.

FACTUAL AND PROCEDURAL BACKGROUND

¶ 8 Ribi, a corporation located in Hamilton, Montana, at all times pertinent to these proceedings, develops biopharmaceutical products. From 1981 to 1985, Ribi used toxic solvents to extract and purify its products. Ribi routinely disposed of its hazardous wastes at Bitterroot Valley Sanitary Landfill (BVSL) for most of this period. Ribi employees transported containers of waste to BVSL each month and poured the liquid contaminants into an open, unlined, earthen pit that measured six feet deep, four feet wide, and eight feet long. Ribi recognized the hazardous nature of its chemical solvents, but hoped that much of the waste would evaporate before migrating through the landfill into the shallow groundwater. Subsequent analysis revealed, however, that the hazardous contaminants migrated into the groundwater approximately 13 to 34 minutes after each disposal.

¶ 9 The Environmental Protection Agency (EPA) discovered groundwater and soil contamination in 1987 resulting from Ribi's waste disposal at BVSL. The National Institute of Health (NIH) later excavated and cleaned the contaminated soil and groundwater. Neighboring property owners sued Ribi in 1993 for personal injury and property damages. The State also sued Ribi in 1997 to recover its response costs arising from contamination in and around the landfill. The next year, 1998, the United States sought contribution from Ribi for NIH's response costs. Ribi eventually settled the claims with all three parties. This litigation arises from the relationship between Ribi and its insurer-Travelers-regarding Ribi's requests for insurance coverage and defense against those three claims.

¶ 10 Travelers issued the CGL policy to Ribi from 1982 through 1985. Ribi filed a claim with Travelers to recover the cost of remediating the damages caused by the contamination. In response, on December 6, 1993, Travelers executed a reservation of rights letter for the neighboring property owners' claims in which it informed Ribi that it owed no indemnity obligation to Ribi and therefore no defense. Travelers also sent Ribi a separate letter on February 10, 1994, regarding its intention to seek reimbursement for defense costs. Travelers and Ribi eventually agreed that Travelers would pay fifty percent of Ribi's defense costs in its suit with the neighboring property owners.

¶ 11 Travelers executed additional reservation of rights letters on January 25, 1996, and March 10, 1999, in response to Ribi's further demand for defense and indemnity of claims brought by the state and federal governments. Travelers again informed Ribi that it owed no indemnity obligations and therefore no defense and also notified Ribi of its intention to seek recoupment of any defense costs in the two government actions. Ribi raised no objections and thereafter, Travelers defended Ribi under its reservation of rights, paying one-hundred percent of the defense costs in the government suits.

¶ 12 Ribi regularly submitted claims to Travelers for defense costs and indemnification under the policies throughout these third-party lawsuits. Travelers denied Ribi's claims and finally brought an action seeking a declaration that it had no duty to provide insurance coverage and defense for these environmental claims. Ribi counterclaimed against Travelers for breach of contract, declaratory relief, breach of the covenant of good faith and fair dealing and violations of the Unfair Claims Settlement Practices Act under § 33-18-201, MCA.

¶ 13 Travelers filed a motion for summary judgment on December 12, 2001, on the declaratory judgment issue and also sought to recoup expenses incurred as part of its defense against the third-party suits. Travelers also refuted Ribi's counterclaim that it had breached the duty of good faith and fair dealing or violated the Unfair Claims Settlement Practices Act in denying Ribi's claims. The District Court granted summary judgment to Travelers on the coverage issue thereby negating all of Ribi's contract-based claims. The court further allowed Travelers to recoup its defense costs in the government suits expended after March 10, 1999. With respect to the neighboring property owners' suits, the District Court initially denied Travelers's recoupment claims, but later amended its order to include those costs expended after February 10, 1994. This appeal followed.

STANDARD OF REVIEW

¶ 14 We review a district court's decision to grant summary judgment de novo, based on the same criteria applied by the district court. Counterpoint, Inc. v. Essex Ins. Co., 1998 MT 251, ¶ 7, 291 Mont. 189, ¶ 7, 967 P.2d 393, ¶ 7. As the material facts here remain uncontroverted, we limit our review to questions of law. Brabeck v. Employers Mut. Cas. Co., 2000 MT 373, ¶ 8, 303 Mont. 468, ¶ 8, 16 P.3d 355, ¶ 8. The District Court interpreted Travelers's insurance contract in reaching its decision and this interpretation of an insurance contract represents a question of law. Pablo v. Moore, 2000 MT 48, ¶ 12, 298 Mont. 393, ¶ 12, 995 P.2d 460, ¶ 12. We review a district court's conclusion of law to determine whether it is correct. Pablo, ¶ 12.

DISCUSSION

¶ 15 Whether the District Court erred in determining that the CGL policy's pollution exclusion provision bars coverage for Ribi's hazardous waste disposal in that the disposal was not "sudden or accidental."

¶ 16 The District Court determined that Ribi's disposal constituted an "occurrence," possibly triggering coverage under the CGL policy, but it found no coverage based upon the fact that Ribi's long-term disposal of hazardous wastes could not be deemed "sudden and accidental" as defined in the CGL policy's pollution exclusion. Ribi argues that the District Court erred in determining that the "sudden and accidental" exception contains a temporal element and instead contends that the term "sudden" should be understood to mean unexpected, and not necessarily quick or abrupt. Ribi maintains, in other words, that even though its disposal may have occurred over a period of years, the CGL policy should provide coverage so long as the ultimate migration of the wastes into the groundwater was unexpected and accidental. Thus, Ribi alleges that the ultimate migration of its waste into the groundwater constituted the relevant event under the CGL policy's pollution exclusion rather than its...