Travelers Ins. Co. v. Waltham Indus. Laboratories Corp.
| Decision Date | 05 June 1989 |
| Docket Number | No. 89-1077,89-1077 |
| Citation | 883 F.2d 1092 |
| Parties | , 20 Envtl. L. Rep. 20,122 TRAVELERS INSURANCE COMPANY, Plaintiff, Appellee, v. WALTHAM INDUSTRIAL LABORATORIES CORPORATION, et al., Defendants, Appellants. . Heard |
| Court | U.S. Court of Appeals — First Circuit |
Anton T. Moehrke with whom Kim Maree Johannessen and Wright & Moehrke, P.C., were on brief, for defendants, appellants.
Thomas L. Crotty, Jr., Peter J. Kalis, Thomas M. Reiter, James R. Segerdahl, Kirkpatrick & Lockhart, John J. Weltman, Brown Rudnick Freed & Gesmer, William Hart, Thomas H. Sear and Anderson Russell Kill & Olick on brief, for United Technologies Corp., Westinghouse Elec. Corp., Polaroid Corp. and Textron Inc., amici curiae.
Daniel O. Mahoney with whom Steven L. Schreckinger, Tamara S. Wolfson, Cassandra Warshowsky, Palmer & Dodge, John P. Graceffa and Gallagher & Gallagher, P.C., were on brief, for plaintiff, appellee.
Thomas W. Brunner with whom Marilyn E. Kerst, Matthew S. Bode and Wiley, Rein & Fielding were on brief, for Ins. Environmental Litigation Ass'n, amicus curiae.
Before BOWNES, REINHARDT, * and TORRUELLA, Circuit Judges.
This case involves the interpretation of a pollution exclusion in insurance policies issued by plaintiff-appellee, Travelers Insurance Company, to defendants-appellants, Waltham Industrial Laboratories Corp. (WIL), and Memory Lane, Inc. Defendant-appellant Melvin Rosenfeld was the founder and chief executive officer of WIL. The other defendant-appellant is Rosenfeld's wife, Phyllis, who owned and operated Memory Lane, Inc. The district court issued summary judgment in favor of Travelers holding that it had no duty to defend two law suits brought against defendants and had no duty to indemnify defendants for the expenses incurred in defending and settling the law suits. The district court also granted summary judgment for Travelers in a pendent state law action brought against it by defendants pursuant to Mass.Gen.Laws Ann. ch. 93A.
The basic issue on appeal is whether the pollution exclusion applies.
In 1959, Melvin Rosenfeld, a chemical engineer, founded WIL and started an electroplating business. WIL leased a parcel of land and buildings from First Republic Corporation at 225 Crescent Street in the city of Waltham, Massachusetts. At the start of its operation, WIL occupied Building 16 and a portion of Building 17. As its business expanded, WIL occupied all of Building 17 and Buildings 18 and 19.
Electroplating involves the use of corrosive chemicals. WIL's disposal of the chemical wastes used in its business engendered concern and complaints by its landlord and local and state officials. In 1967, First Republic, WIL's landlord, expressed apprehension that the use of the corrosive chemicals and their disposal was causing damage to the metal surfaces of the leased buildings and other damages to the leasehold.
First Republic was not the only one concerned about the side effects of WIL's electroplating operation. In 1971 Rosenfeld and the Superintendent of the City of Waltham's Public Works Department were warned by the Director of the Water Resources Commission of the Commonwealth that WIL's daily discharge of untreated electroplating wastes into the municipal sewerage lines would cause damage to the lines. Also in 1971, WIL was notified by the Massachusetts Division of Water Pollution Control that some of its electroplating wastes were running into the Charles River and it was ordered to abate this pollution. In September of 1973, the Metropolitan District Commission (MDC) notified WIL that it was violating MDC regulations relative to the discharge of chemicals and toxic heavy metals into the sewerage system. There was an investigation by the MDC. Its investigative report made specific findings: WIL had made illegal cross-connections between its rinsing and plating tanks and the public water supply without using adequate safety measures; seepage from WIL's tanks drained through holes in the floor of the buildings into the basement; and there were illegal discharges of waste, including sludge, into the sewerage system which was eating away the sewerage pipes and pumping equipment at the site. The MDC recommended that WIL's sewerage line be disconnected to prevent further pollution and damage.
On October 2, 1973, Rosenfeld acknowledged that his company was discharging about 35,500 gallons of untreated chemical wastes into the municipal sewerage system daily. The wastes contained cyanide, acids, nickel, aluminum and zinc. Rosenfeld indicated that he would try to correct the problem. A plan for pretreatment of its industrial wastes was submitted by WIL to the MDC in 1974, but it was never implemented. WIL did install a mechanism for moderating the pH of its discharges in 1977 but it did not function properly all the time. WIL ceased operations in March of 1984. Chemical-waste sludge was found in the crawl spaces beneath Buildings 18 and 19.
The other corporate defendant, Memory Lane, Inc. was formed in August 1983 by Phyllis Rosenfeld, wife of Melvin Rosenfeld. Its main business was the preservation of baby shoes by using a baked-on preservative. The end product resembled a ceramic shoe. Phyllis Rosenfeld had started this business as a home operation in 1955. In the early 1960's Memory Lane became a division of WIL; its operations were carried on in a portion of Building 17.
Travelers issued policies to WIL covering the period from December 1, 1979 to December 1, 1984. The last policy was cancelled as of October 1, 1984. It also issued a policy to WIL and Memory Lane for the period July, 1984 to July, 1985. The pertinent provisions of the policies will be discussed later.
On November 30, 1984, First Republic brought a complaint against the four defendants in the Superior Court for Middlesex County, Massachusetts. On August 12, 1985, the Massachusetts Water Resources Authority brought a complaint against WIL, Melvin Rosenfeld and First Republic in the Suffolk County Superior Court. On the same day, August 12, 1985, the Commonwealth moved that the action by the Water Resources Authority be consolidated with the pending action of First Republic against WIL. The motion was assented to by First Republic and WIL; it was allowed on August 15, 1985. On January 30, 1987, First Republic filed an amended complaint in Suffolk County Superior Court. We discuss in detail, infra, the allegations in these complaints.
Travelers disclaimed coverage in the suit by First Republic and refused to defend. It agreed to defend the suit by the Massachusetts Water Resources Authority but under a reservation of rights. A payment of $10,000 was made by Travelers towards the defense of this suit. This payment was made prior to the time both actions were consolidated for trial.
On March 27, 1987, Travelers brought a declaratory judgment action in federal district court pursuant to 28 U.S.C. Secs. 2201 and 2202. It sought a judgment declaring that it had no duty to defend the defendants in the consolidated lawsuit brought against them by First Republic and the Massachusetts Water Resources Authority. On April 29, 1987, defendants answered and filed a counterclaim. The counterclaim sought a preliminary injunction ordering Travelers to pay one-third of the defense costs, a declaration that Travelers was obligated to defend and indemnify in the underlying action and a declaration that Travelers had engaged in unfair and deceptive actions under Mass.Gen.Laws Ann. ch. 93A, Sec. 2 and Mass.Gen.Laws ch. 176D, Sec. 3(9).
On November 9, 1987, First Republic and the four defendants entered into a settlement agreement that provided for the payment of $242,500 by defendants to First Republic. The agreement states in a "Whereas" clause that defendants WIL and Melvin Rosenfield have agreed to pay the sum of $27,500 in settlement of all claims of the Commonwealth in the suit brought by the Massachusetts Water Resources Authority. An agreement for judgment in both cases was entered in Suffolk County Superior Court on November 23, 1987.
On March 15, 1988, Travelers moved in federal court for partial summary judgment on the question of its duty to indemnify the defendants for the sums paid in settlement. On the same date defendants moved for summary judgment on their counterclaim. A month later, April 15, Travelers filed a cross motion for summary judgment on the question of its duty to defend in the two suits and in the defendants' pendent state claim brought under Mass.Gen.Law Ann. ch. 93A. The parties opposed each other's motions for summary judgment.
This appeal followed the district court's granting of Travelers' motions for summary judgment and its denial of defendants' summary judgment motion.
Each of the insurance policies stated:
1. COVERAGE A--BODILY INJURY LIABILITY
The Company will pay on behalf of the Insured all sums which the Insured shall become legally obligated to pay as damages because of
Coverage A--bodily injury or
Coverage B--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, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such investigation and settlement of any claim or suit as it deems expedient, but the Company shall not be obligated to pay any claim or judgment or to defend any suit after the applicable limit of the Company's liability has been exhausted by payment of judgments or settlements.
(Emphasis in original).
This is followed by the exclusions; the pollution exclusion states:
This insurance does not apply: to bodily injury or property damage arising out of any emission, discharge, seepage, release...
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