U.S. Aviex Co. v. Travelers Ins. Co.

• Decision Date: 01 August 1983
• Docket Number: Docket No. 59829
• Citation: 336 N.W.2d 838,125 Mich.App. 579
• Parties: , 13 Envtl. L. Rep. 20,577 UNITED STATES AVIEX CO., a Michigan corporation, Plaintiff-Appellee, v. Attorney General of the State of Michigan, Plaintiff-Intervenor-Appellee, v. TRAVELERS INSURANCE CO., a Connecticut corporation, Defendant-Appellant.
• Court: Court of Appeal of Michigan — District of US

Page 838

336 N.W.2d 838

125 Mich.App. 579, 13 Envtl. L. Rep. 20,577

UNITED STATES AVIEX CO., a Michigan corporation, Plaintiff-Appellee, v. Attorney General of the State of Michigan, Plaintiff-Intervenor-Appellee, v. TRAVELERS INSURANCE CO., a Connecticut corporation,

Defendant-Appellant.

Docket No. 59829.

Court of Appeals of Michigan.

Submitted Oct. 6, 1982.

Decided May 5, 1983.

Rehearing Denied June 27, 1983.

Released for Publication Aug. 1, 1983.

Tolley, Fisher & Verwys, P.C. by William T. Fisher and Todd R. Dickinson, Grand Rapids, for plaintiff-appellee.

Frank J. Kelley, Atty. Gen., Louis J. Caruso, Sol. Gen., Stewart H. Freeman, Asst. Atty. Gen., In Charge, and Elizabeth L. Valentine, Asst. Atty. Gen., for the Attorney General.

Fisher, Troff & Fisher by Theodore E. Troff, St. Joseph, for defendant-appellant.

Before R.B. BURNS, P.J., and MacKENZIE and BROWN ^*, JJ.

BROWN, Judge.

Defendant appeals by right from a declaratory judgment ordering defendant to reimburse plaintiff for costs incurred in determining and correcting chemical contamination of percolating waters underneath plaintiff's property. On appeal, defendant challenges the propriety of the declaratory relief and the decision by the trial court that defendant must reimburse the plaintiff.

Evidence at the hearing for declaratory judgment established that on November 25, 1978, a fire destroyed plaintiff's chemical manufacturing facility in Niles, Michigan. Water used in putting out the fire caused toxic chemicals in the facility to seep into the ground, contaminating the groundwater beneath plaintiff's property. At the time of the fire, plaintiff was insured by defendant under a policy which required defendant to pay on behalf of plaintiff "all sums which the insured shall become obligated to pay by reason of liability imposed by law upon the insured * * * as damages because of * * * property damage". Damage to "property owned by the insured" was excluded from the policy's coverage. Under the policy, defendant had the "right and duty to defend any suit against the insured seeking damages * * * ".

In November, 1979, plaintiff was notified by the Water Quality Division of the Michigan Department of Natural Resources (DNR) that plaintiff must conduct an investigation to determine the extent of the contamination and correct the contamination or the DNR would refer the matter for legal action. The parties agreed that plaintiff promptly and correctly notified defendant of these demands. Defendant admitted coverage (as distinct from liability) under the insurance policy for any claim, raised by neighboring property owners for damages proximately resulting from the fire but denied, and continued to deny throughout the hearing, coverage for contamination of water located below plaintiff's property, arguing that no claim of damages had been presented against plaintiff and that the groundwater beneath plaintiff's property was excluded from coverage because it was "property owned by the insured".

Plaintiff proceeded to select a soil testing firm (Soil Testing Services, "STS") to perform the investigative tests demanded by the DNR and spent approximately $80,000 for the testing and firm proposals. STS installed monitoring and test wells to trace the groundwater flow from plaintiff's property. At the hearing, the Director of Environmental Services for STS, Dr. Balkumar P. Shah, stated his opinion, based partly on a previous study performed by another testing firm, that the percolating water beneath plaintiff's property was flowing in a southwesterly direction at a rate of approximately 500 feet per year. According to STS's studies, chemicals from the facility had entered the groundwater and been found on neighboring property. Dr. Shah stated that the costs of clean-up could exceed one million dollars.

The DNR continued to press plaintiff in a series of letters to correct the contamination. In February, 1981, the DNR warned plaintiff that failure to comply with its demands would "result in escalated enforcement action being taken against the company, including a lawsuit for damages to the waters of the state". According to Michael Beck, the acting district engineer for the DNR, the demands were premised on the results of the DNR's tests, which indicated a severe groundwater contamination problem beneath plaintiff's property and the presence of traces of chemicals in a neighbor's well. By the time of trial, however, the state had not filed a lawsuit.

At the close of this evidence, the trial court ruled that declaratory relief was appropriate and held that, under the insurance policy, defendant was obligated "to defend any claim or action and to pay for any damages to the extent of the policy's monetary limits determined by a tribunal of competent jurisdiction, which damages will include the costs of plaintiff imposed by such tribunal or resulting from a determination by such tribunal for correcting the chemical contamination of the percolating or ground water underneath plaintiff's premises or which has migrated beyond plaintiff's premises caused by the fire on plaintiff's premises of November 25, 1978". The court also ruled that "[t]he obligation of the defendant includes reimbursement of plaintiff for the costs and expenses of any study and testing incurred by the plaintiff to date".

Defendant first contends that the trial court erred in permitting plaintiff to bring an action for declaratory relief under GCR 1963, 521.1 because no actual controversy existed between plaintiff and defendant. We disagree.

The declaratory judgment rule was intended to be liberally construed to provide a broad, flexible remedy to increase access to the court. In the usual case, an actual controversy exists where a declaratory judgment is necessary to guide a litigant's future conduct in order to preserve his legal rights. A court is not precluded from reaching issues before actual injuries or losses have occurred. Shavers v. Attorney General, 402 Mich. 554, 588-589, 267 N.W.2d 72 (1978). In some instances, a declaratory judgment is appropriate even though future contingencies exist which will determine whether the "controversy" actually becomes real:

"The familiar type of suit in which a liability insurer seeks a declaration that it will not be liable to indemnify an insured person for any damages he may recover against the insured is an example. The injured person may not sue or he may not obtain a judgment against the insured, but there is held to be sufficient controversy between the insurer and the injured person that a declaratory judgment is permissible." 10 Wright & Miller, Federal Practice and Procedure: Civil, § 2757, p 759 (1973).

In this case, plaintiff was faced with threats of legal action by the DNR. Although, as defendant argues, the DNR could seek legal redress in the form of an order for abatement of water pollution (M.C.L. § 323.6; M.S.A. § 3.526), a criminal complaint (M.C.L. § 323.9; M.S.A. § 3.529), or injunctive relief (M.C.L. § 323.10; M.S.A. § 3.529 ), and so possibly never seek a remedy covered by the insurance policy, plaintiff nevertheless needed to know whether defendant would be required to defend against a covered remedy should such a remedy be sought. Only with this knowledge could plaintiff choose between voluntarily complying with the DNR's very real and repeated demands and opposing the DNR's actions.

Defendant next argues that its due process rights were violated by the trial court's order requiring defendant to pay for the expenses of the studies done prior to entry of the declaratory judgment. Defendant argues that a full hearing is required by the water resources act, M.C.L. § 323.1 et seq.; M.S.A. § 3.521 et seq., before an order to abate pollution may be enforced. In this case, plaintiff and the DNR agreed that the plaintiff should move immediately to prevent further off-site contamination, investigate the extent of the contamination, and implement a plan for preventing further contamination, and so plaintiff proceeded without a hearing. Defendant argues that this agreement denied defendant the opportunity to appear at a hearing to contest the necessity and reasonableness of the DNR's demands.

M.C.L. § 323.7; M.S.A. § 3.527 and M.C.L. § 323.8; M.S.A. § 3.528 provide the statutory framework for hearings to determine the existence of and means of correcting unlawful water pollution. M.C.L. § 323.7; M.S.A. § 3.527 explicitly provides for disposition of a case without a hearing where the alleged polluter "agrees with the terms of the proposed permit and period of time for abatement of pollution which the commission deems necessary". Such an agreement constitutes an "order" of the Water Resources Commission and may be attacked by an interested or aggrieved person. White Lake Improvement Ass'n v. City of Whitehall, 22 Mich.App. 262, 276-277, 177 N.W.2d 473 (1970). The right to attack this "order" is set forth in M.C.L. § 323.8; M.S.A. § 3.528, which provides that any aggrieved person may request a hearing on the "order", and appear, present witnesses, and submit evidence at the hearing.

Defendant was thus entitled to a hearing before the Water Resources Commission upon request. Defendant, however, decided not to request a hearing, relying instead upon its denial of any obligation to plaintiff under the insurance contract. Plaintiff informed defendant throughout the proceedings of the DNR's demands and repeatedly requested defendant's intercession under the insurance contract. Under such circumstances, we can only conclude that defendant waived its right to request a hearing and cannot now complain that plaintiff reached an agreement with the DNR. Glover v. Kalamazoo, 98 Mich.App. 465, 469, 296 N.W.2d 280 (1980), lv. den. 411 Mich. 951 (1981).

Defendant also questions the trial court's ruling that defendant is "obligated to defend any claim or action, and to pay for any costs of [plaintiff], for correcting chemical...