Trustees of Tufts University v. Commercial Union Ins. Co.

• Decision Date: 16 July 1993
• Citation: 616 N.E.2d 68,415 Mass. 844
• Parties: , 84 Ed. Law Rep. 421 TRUSTEES OF TUFTS UNIVERSITY v. COMMERCIAL UNION INSURANCE COMPANY & another. 1
• Court: United States State Supreme Judicial Court of Massachusetts Supreme Court

Page 68

616 N.E.2d 68

415 Mass. 844, 84 Ed. Law Rep. 421

TRUSTEES OF TUFTS UNIVERSITY v. COMMERCIAL UNION INSURANCE COMPANY & another. ¹

Supreme Judicial Court of Massachusetts,

Middlesex.

Argued April 8, 1993.

Decided July 16, 1993.

Stephen J. Brake, Boston (Daniel J. Gleason, Joseph G. Blute & Julie A. Trachten, with him), for plaintiff.

Michael F. Aylward, Boston, for St. Paul Fire and Marine Ins. Co.

Peter G. Hermes (Robert A. McCall & Kevin J. O'Connor, Boston, with him) for Commercial Union Ins. Co.

David M. Jones, John M. Edwards, James E. McGuire & Diane E. Kenty, Boston, for Bose Corp. & others, amici curiae, submitted a brief.

Thomas W. Brunner, Laura A. Foggan, Robert B. Bell & William G. Miller, Washington, DC, & Michael R. Coppock, Boston, for Ins. Environmental Litigation Ass'n, amicus curiae, submitted a brief.

Before LIACOS, C.J., and WILKINS, LYNCH, O'CONNOR and GREANEY, JJ.

LYNCH, Justice.

Trustees of Tufts University (Tufts) commenced this action for declaratory relief against the defendant insurers, Commercial Union Insurance Company (Commercial Union) and St. Paul Fire & Marine Insurance Company (St. Paul), seeking a declaration that the insurers were under a duty to defend Tufts in a liability claim. The insurers moved for summary judgment. A judge in the Superior Court granted the insurers' motion, and Tufts appealed. We granted the Tufts' application for direct appellate review.

The following facts are not in dispute. Tufts purchased liability insurance coverage from both insurers. The policy periods on the Commercial Union policy extended from July 1, 1968, to November 7, 1972. The policy periods on the St. Paul policy covered November 7, 1972, through July 1, 1975.

In June, 1977, the Jacksonville Electric Authority (Jacksonville) acquired by condemnation land in Florida that had once been owned by a subsidiary of Tufts. In April, 1989, Jacksonville filed suit in the United States District Court for the Middle District of Florida against Tufts and two other defendants, to recover cleanup and response costs for environmental damage to the land under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (CERCLA), as amended, 42 U.S.C. §§ 9601 et seq (1988). The complaint alleged that: (1) the Eppinger and Russell Company (E & R), The Bernuth Corporation, and Tufts owned or operated a creosote wood preservation facility on the subject parcel until the early 1960's; (2) E & R was a wholly owned subsidiary of Tufts from 1925 until 1942; (3) while E & R, Bernuth and Tufts owned or operated the facility, arsenic creosote, carbazole, and phenanthrene were released during transfer, storage, and preservation treatment operations on the parcel; (4) Jacksonville had incurred and will incur costs for remedial actions necessary to treat and cap the hazardous substances released on the site; (5) the actions taken are in response to directives from the Florida Department of Environmental Regulation pursuant to a consent order, a copy of which was attached to the complaint. The consent order stated that tests indicated contamination of soil and ground water, and that Jacksonville was attempting to eliminate discharges into the St. Johns River. ²

Tufts moved for summary judgment on Jacksonville's complaint and a United States District Court judge granted the motion on the basis that Tufts was not an "owner and/or operator" of the site under CERCLA. Jacksonville Elec. Auth. v. Eppinger & Russell Co., 776 F.Supp. 1542 (M.D.Fla.1991), and Jacksonville appealed. That appeal is currently pending in the United States Court of Appeals for the Eleventh Circuit.

In May, 1989, Tufts demanded that the insurers defend and indemnify it in connection with the Jacksonville action. When the insurers refused, Tufts filed this action in Superior Court in Middlesex County seeking a declaration of its rights under the policies. The Superior Court judge ruled: "The insurers have no duty to defend in this case because the claimant Jacksonville did not become the owner of the property until June, 1977, and thus could not possibly have sustained property damage in relation to this property until two years after the end of the latest policy period." We reverse.

1. A liability insurer has the duty to defend third-party actions against an insured if the allegations in the third-party complaint are reasonably susceptible of an interpretation that they state or adumbrate a claim covered by the policy terms. ³ Liberty Mut. Ins. Co. v. SCA Servs., Inc., 412 Mass. 330, 331-332, 588 N.E.2d 1346 (1992). Continental Casualty Co. v. Gilbane Bldg. Co., 391 Mass. 143, 146-147, 461 N.E.2d 209 (1984). Sterilite Corp. v. Continental Casualty Co., 17 Mass.App.Ct. 316, 318, 458 N.E.2d 338 (1983). Under the policy terms the insurers promised to "pay on behalf of the insured all sums which the insured shall become legally obligated to pay as damages because of ... property damage ... 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 ... property damage, even if any of the allegations of the suit are groundless, false or fraudulent ..." (emphasis added). ⁴ In the Commercial Union policy the term "occurrence" is defined as "an accident, including injurious exposure to conditions, which results, during the policy period, in bodily injury or property damage, neither expected nor intended from the standpoint of the insured." The policies define "property damage" as "injury to or destruction of tangible property" during the policy period. ⁵ The policies contain provisions excluding coverage for "property damage to property owned or occupied by ... the insured," but do not contain pollution exclusion clauses.

Reading these policy provisions together, we conclude that the allegations in the Jacksonville complaint state a claim covered by the policy terms. In the United States District Court complaint, Jacksonville requests reimbursement for the cost of cleaning up contamination on the site caused by release of hazardous substances during the time Tufts owned or operated the site. The "occurrence" is the "injurious exposure" to the hazardous material during the policy periods. The "property damage" is the continued contamination of soil and groundwater on the site during the policy periods caused by the release of the hazardous material. Hazen Paper Co. v. United States Fidelity and Guar. Co., 407 Mass. 689, 698, 555 N.E.2d 576 (1990). The plain language of the policy terms, therefore, indicates that the insurers had a duty to defend Tufts in these claims.

The insurers argue that the proper inquiry under these policies is not whether property damage occurred during the policy period, but whether the entity making the claim sustained harm during the policy period. Hoppy's Oil Serv., Inc. v. Insurance Co. of N. Am., 783 F.Supp. 1505, 1508 (D.Mass.1992). Thus, they argue that the judge was correct in ruling that, since Jacksonville did not acquire the property until 1977, it could not have sustained harm until after the last policy period in 1975. We disagree with this interpretation of the policies. The policy language does not require that Jacksonville have a property interest in the contaminated property during the policy period, but only that the property damage itself occur during that time. Had the insurers intended to exclude coverage whenever the underlying plaintiff did not own the property at the time of the occurrence, the insurers could have expressed such an exclusion. See Garriott Crop Dusting Co. v. Superior Court of Kern County, 221 Cal.App.3d 783, 791, 270 Cal.Rptr. 678 (1990). Even assuming that the policies are susceptible to the interpretation of the insurers, where "there are two rational interpretations of policy language, the insured is entitled to the benefit of the one that is more favorable to it." Hazen Paper Co. v. United States Fidelity & Guar. Co., supra, 407 Mass. at 700, 555 N.E.2d 576.

In construing this policy, it is also appropriate "to consider what an objectively reasonable insured, reading the relevant policy language, would expect to be covered." Id. We conclude that a reasonable policyholder, reading this policy language, would expect coverage in these circumstances. There is no restriction in the language of the policy requiring that the claimant possess an ownership interest in the property at the time the damage occurred. "We read the policy as written. We are not free to revise it or change the order of the words." Continental Casualty Co. v. Gilbane Bldg. Co., 391 Mass. 143, 147, 461 N.E.2d 209 (1984). This court has, in the past, refused narrowly to construe policy terms which would limit or defeat "any coverage fairly intended to be given by a policy described by the insurer in such broad terms ('Comprehensive General Liability Policy') as was this policy." Vappi & Co. v. Aetna Casualty & Sur. Co., 348 Mass. 427, 432, 204 N.E.2d 273 (1965).

The judge and the insurers rely on Hoppy's Oil Serv., Inc. v. Insurance Co. of N. Am., 783 F.Supp. 1505, 1508 (D.Mass.1992) ("Under 'occurrence' coverage, as commonly construed and applied in Massachusetts ... and other states as well, an entity making a tort claim against the insured must sustain harm within the period of the policy in order to assert a claim to which the insurance applies"). In Hoppy's Oil, the court held that an insurer had no duty to defend an insured where the plaintiff in the underlying action did not acquire an interest in the property allegedly damaged by the insured until after the period of the policy. Hoppy's Oil Serv., Inc. v. Insurance Co. of N. Am., supra at 1508. The United States District Court based its decision on a Massachusetts case, Continental Casualty Co. v. Gilbane Bldg. Co., supra. See Hoppy's Oil Serv., supra at 1508-1509 ("Although the Massachusetts Supreme Judicial Court has not...