Uniroyal, Inc. v. Home Ins. Co.

• Decision Date: 19 December 1988
• Docket Number: No. CV-84-3999 (JBW).,CV-84-3999 (JBW).
• Citation: 707 F. Supp. 1368
• Parties: UNIROYAL, INC., Plaintiff, v. The HOME INSURANCE CO., et al., Defendants.
• Court: U.S. District Court — Eastern District of New York

707 F. Supp. 1368

UNIROYAL, INC., Plaintiff, v. The HOME INSURANCE CO., et al., Defendants.

No. CV-84-3999 (JBW).

United States District Court, E.D. New York.

December 19, 1988.

Joseph Ferraro, Myron Kalish, Bruce A. Hecker, Shea & Gould, New York City, for plaintiff Uniroyal, Inc.

Sheila L. Birnbaum, Irene A. Sullivan, Timothy G. Reynolds, Skadden, Arps, Slate, Meagher & Flom, New York City, for defendant The Home Ins. Co.

Michael Nussbaum, Nussbaum, Owen & Webster, Washington, D.C., for London Insurer defendants.

William E. Hegarty, Michael Tierney, Leonard A. Spivak, Gary A. Paranzino, Cahill, Gordon & Reindel, New York City, on the brief of amicus curiae Diamond Shamrock Chemicals Co.

REVISED MEMORANDUM AND ORDER

WEINSTEIN, District Judge:

I. PROCEDURAL HISTORY

This lawsuit is part of the "Agent Orange" Product Liability Litigation. In the underlying mass toxic tort action, a class of approximately 2.5 million Vietnam veterans and their family members sued the United States and the manufacturers of phenoxy herbicides used in the Vietnam war. The plaintiffs alleged that exposure to the herbicides and the contaminant dioxin resulted in a variety of devastating maladies, including cancers, genetic damage and birth defects, skin diseases, and nervous disorders.

The class action was effectively concluded on May 7, 1984 by a settlement in which seven manufacturers agreed to pay the class $180 million. See, e.g., In re "Agent Orange" Product Liability Litigation, 597 F.Supp. 740 (E.D.N.Y.1984) (finding settlement reasonable and fair); In re "Agent Orange" Product Liability Litigation, 611 F.Supp. 1396 (E.D.N.Y.1985) (ordering distribution plan). Actions by those who opted out of the plaintiffs' class were dismissed on motions for summary judgment. See In re "Agent Orange" Product Liability Litigation, 611 F.Supp. 1223 (E.D.N.Y. 1985), 611 F.Supp. 1267 (E.D.N.Y.1985) (dismissing claims of opt-outs on grounds of inability to prove causation and military contractor defense).

Over three years of appeals followed, culminating in affirmances by the Court of Appeals for the Second Circuit and the denials of petitions for certiorari by the United States Supreme Court. See In re "Agent Orange" Product Liability Litigation, 689 F.Supp. 1250 (E.D.N.Y.1988) (summarizing history of litigation, settlement, and appeals, and ordering final distribution plan).

Having settled with the class of veterans, Uniroyal Inc. ("Uniroyal") seeks reimbursement from its insurance carriers for its share of the settlement, approximately $9 million, and for its defense costs, approximately $3 million. Uniroyal also seeks a declaration that it is covered for additional "Agent Orange" litigation defense costs and liabilities. Subject matter jurisdiction is based on diversity. 28 U.S.C. § 1332.

The parties have filed cross-motions for summary judgment. They disagree about the interpretation of an "occurrence" and of the "war risk exclusion" in the insurance policies issued to Uniroyal by The Home Insurance Company ("Home"). Home argues that (1) Uniroyal has failed to meet its burden of proving "actual injuries" underlying the settlement; (2) each spraying in Vietnam constitutes one separate "occurrence," to which a separate deductible must be applied; and (3) coverage is unavailable because of the war risk exclusion. Uniroyal contests each of Home's contentions, and urges that there was but one occurrence, namely the negligent manufacture and failure to warn of dioxin dangers.

II. FACTS

A. Herbicide Production.

"Agent Orange" — a term used in this litigation to comprise the group of related phenoxy herbicides labelled Agents Orange, White, Blue, Pink, Purple and other designations — was sprayed by the United States military in Vietnam between 1961 and 1971, principally in order to defoliate areas in which enemy guerilla forces might conceal themselves and to destroy crops. Over the entire period, between 17 and 19 million gallons of the herbicides were sprayed, covering about ten percent of the total land area of South Vietnam. The peak year of spraying was 1967, in which eighteen to twenty-seven aerial spray sorties were flown each day. See In re "Agent Orange" Product Liability Litigation, 597 F.Supp. 740, 776-77 (E.D.N.Y. 1984). There may have been well over twenty thousand aerial spray sorties, as well as many smaller hand-held spray applications.

Plaintiff Uniroyal entered into three contracts, dated September 1, 1966, January 31, 1967, and May 2, 1967, to produce Agent Orange for the United States military. Uniroyal directed its operations from its offices in Naugatuck, Connecticut and manufactured the herbicides at its plants in Canada following detailed specifications published by the military. As it was obligated to do by its contracts, Uniroyal transported the herbicides to military depots on the West Coast of North America, under the direction of the Air Force Aerospace Fuels Field Office ("AFAFFO") in Bell, California.

Uniroyal's first delivery occurred on October 6, 1966, and its last on March 1, 1968. During that time Uniroyal made a total of 110 deliveries to the Air Force. The number of deliveries was a function of the size of the available freightcars; each of the 110 deliveries consisted of 100 or more 55-gallon drums. The three contracts overlapped somewhat and their delivery schedules dovetailed, so that the delivery schedules of the three contracts intermingled and ran smoothly into one another. Of the first thirty-eight deliveries, thirty-one were for exactly 5,451 gallons of herbicide. The last seventy-two deliveries were each for exactly 6,868.26 gallons. Except for January, February and April of 1967, when no deliveries were made, Uniroyal shipped steadily at least three deliveries per month and as many as thirteen in one month. See Stipulated Delivery Schedule. In overview, Uniroyal undertook a routinized, repetitive delivery process in which it regularly and continuously supplied the Air Force virtually identical shipments for seventeen months.

Once Uniroyal delivered the Agent Orange to the Air Force on the West Coast, Uniroyal had nothing further to do with the herbicides or their application. The military shipped its mixtures to Vietnam for mixing with other manufacturers' herbicides, and possibly with other chemicals, and for spraying. Delivery in the United States ended Uniroyal's part in the Agent Orange process. Uniroyal played no role in the formulation of the final herbicide mixtures, the transport to Asia, the choice of spray methods and technology, warnings to the users, safety procedures, the selection of spray sites, or the supervision of spray sorties. The safety of spray techniques was managed (if at all) entirely by the government. The number of spray sorties and the amount of Agent Orange released on each sortie was determined solely by the military, often on a day-to-day or moment-to-moment basis.

In a civilian contractual relationship, Uniroyal would likely have provided support personnel at the point of application, training instructors and manuals, and periodic project reviews. Uniroyal would have been able to advise its buyers to take proper safety precautions precisely in order to avoid liability to victims from careless or excessive spraying. The armed forces, however, took complete control and permitted no input from the civilian suppliers. Uniroyal had neither contractual nor economic influence over its military customers' activities. In sum, Uniroyal was walled off from all influence over its product after it made delivery in the United States.

B. Insurance Coverage.

During the period in question Uniroyal purchased five consecutive Comprehensive General Liability ("CGL") insurance policies from Home. The durations and limits of the Home policies are summarized in the table below.

                           Dates       Aggregate limit     Aggregate limit     Deductible*
                           in effect   per occurrence       per year         per occurrence
                           2/1/65-      $ 6,000,000        $ 6,000,000         $100,000
                           5/1/67
                           5/1/67-      $10,000,000        $10,000,000         $100,000
                           5/1/70
                           5/1/70-      $10,000,000        $10,000,000         $500,000
                           9/8/72
                           9/8/72-      $10,000,000        $10,000,000         $250,000**
                           9/8/75
                           9/8/75-      $ 2,000,000        $ 2,000,000         $500,000
                           9/8/76
                

In addition, beginning September 8, 1976, Uniroyal purchased coverage from the thirteen "London Insurers" also named as defendants in this lawsuit. As indicated below, the terms of these policies are not at issue on these cross-motions for summary judgment, because none of the London Insurers' policies was in effect at times triggered by Agent Orange-related injuries. The London Insurers appeared at the oral argument on these motions but have filed no pertinent papers.

The cross-motions concern disputed interpretations of the policies Uniroyal purchased from Home. The five Home policies indemnified Uniroyal:

for all sums which the Insured shall be obligated to pay by reason of the liability

(a) imposed on the Insured by law, or

(b) assumed under contract or agreement by the Named Insured ...

for damages, direct or consequential and expenses, all as more fully defined by the term `ultimate net loss' on account of —

(i) Personal Injuries, including death at any time resulting therefrom,

(ii) Property Damage,

(iii) Advertising Liability,

caused by or arising out of each occurrence happening anywhere in the world.

The term "all sums" was modified by the limits and deductibles described in the table above. "Ultimate Net Loss" was defined to include "the total sum which the insured ... becomes obligated to pay ... either through adjudication or compromise ... and for litigation, settlement, adjustment and investigation of claims and suits which are paid as a consequence of any occurrence covered...