Vermont Gas Systems v. USF&G

• Decision Date: 19 October 1992
• Docket Number: Civ. A. No. 90-121.
• Court: U.S. District Court — District of Vermont
• Parties: VERMONT GAS SYSTEMS, INC., Plaintiff, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Employer's Surplus Lines Insurance Company, St. Paul Surplus Lines Insurance Company and Associated Electric & Gas Insurance Services, Ltd., Defendants.

805 F. Supp. 227

VERMONT GAS SYSTEMS, INC., Plaintiff, v. UNITED STATES FIDELITY & GUARANTY COMPANY, Employer's Surplus Lines Insurance Company, St. Paul Surplus Lines Insurance Company and Associated Electric & Gas Insurance Services, Ltd., Defendants.

Civ. A. No. 90-121.

United States District Court, D. Vermont.

October 19, 1992.

Leo A. Bisson, Jr., Bruce C. Palmer, Downs, Rachlin & Martin, St. Johnsbury, Vt., for plaintiff.

Allan R. Keyes, Ryan, Smith & Carbine, Ltd., Rutland, Vt., for defendant U.S. Fidelity & Guar. Co.

Samuel Hoar, Jr., Philip C. Woodward, Dinse, Erdmann & Clapp, Burlington, Vt., for defendant Employer's Surplus Lines Ins. Co.

Peter B. Joslin, Theriault & Joslin, P.C. Montpelier, Vt., for defendant St. Paul Surplus Lines Ins. Co.

Alan Rutkin, Rivkin, Radler, Bayh, Hart & Kremer, Uniondale, N.Y., for defendant Associated Elec. & Gas Ins. Services, Ltd.,

OPINION AND ORDER

PARKER, Chief Judge.

I. INTRODUCTION

Plaintiff Vermont Gas Systems ("VGS") brought a declaratory judgment action, pursuant to Title 28 U.S.C. § 2201 and Fed. R.Civ.P. 57, against defendants United States Fidelity & Guaranty Company ("USF & G"), Employer's Surplus Lines Insurance Company ("ESLIC"), St. Paul Surplus Lines Insurance Company ("St. Paul") and Associated Electric & Gas Insurance Services ("AEGIS"). Plaintiff seeks to establish and enforce defendants' duty to defend and indemnify it regarding claims by the Environmental Protection Agency (EPA) and other third parties that VGS is responsible for damages and costs associated with the Pine Street Canal Superfund Site ("Site") and its cleanup, pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 U.S.C. §§ 9601-9675 ("CERCLA").

Presently at issue in this case is whether an insurer has an initial duty to defend claims against the insured even though the insurer contends it did not receive timely notice of the claims for which the insured seeks coverage, as required by the governing policy. VGS has moved for a partial summary judgment, pursuant to Fed. R.Civ.P. 56, as to the duty to defend, against defendant USF & G. Though relief is sought only against defendant USF & G, all defendants have joined in opposing the motion.

II. BACKGROUND

A. Facts

This litigation arises from the actions of the EPA in responding to the environmental problems at the Site and VGS' potential liability for those problems. The following material facts are not in dispute by any of the parties.

The Pine Street Canal and Barnes Basin were constructed in the City of Burlington in the mid-1800's to provide shipping access to several sawmills and lumber yards which were located along Pine Street in the Lake Champlain backwater marsh. In 1908, Burlington Gas Works began operation of a gas manufacturing plant on Pine Street and continued the operation until 1964, when VGS purchased property at the Site, including the gas manufacturing plant. VGS operated the plant, facilities, and distribution system located at the site from 1964 through the spring of 1966.

In early 1966, the gas plant ceased operations. On March 21, 1967, VGS sold the land on which the gas plant was located to the City of Burlington. Under the terms of the conveyance, VGS retained ownership rights over a small parcel of land until such time as it would cease to use the land as a gate station. VGS also assumed responsibility for dismantling the plant, which was accomplished by the end of 1967.

In October 1981, the Site was added to the National Priority List under CERCLA. On March 5, 1982, the EPA notified VGS that it was a potentially responsible party ("PRP") for the cost of cleaning up the site. It is undisputed that VGS did not provide USF & G notice of its receipt of this correspondence.

By a letter dated May 4, 1987 VGS was requested, pursuant to Section 104 of CERCLA (42 U.S.C. § 9604(e)), to provide EPA with specific information regarding VGS' activities at the Site. The requested information was to aid the agency's investigation of the extent of contamination at the Site, as well as the ability of persons connected with the Site to pay for or perform a clean-up of the Site.

On November 30, 1987 EPA sent a General Notice letter formally demanding VGS to reimburse EPA for past costs associated with an immediate removal action in 1985 at the "Maltex Pond" Site¹ and informing VGS of its potential liability for future cleanup costs. On February 23, 1988 EPA sent VGS a Special Notice letter reiterating its demand for reimbursements of past costs and stating that it would begin cleanup and enforcement actions at the Site unless voluntary participation was forthcoming. It is undisputed that VGS provided its insurers with notice of these three letters.

The EPA is currently performing response actions at the Site, including a Remedial Investigation and Feasibility Study ("RI/FS") to determine the extent of contamination and to evaluate the nature of any further response actions necessary to provide a permanent remedy for the Site.

B. Insurance Policies

All defendants at one time or another provided insurance coverage for VGS or its predecessor in interest. VGS and USF & G have stipulated to a number of details concerning the insurance policies issued to plaintiff by USF & G (Paper # 74). The Stipulation indicates, inter alia, that USF & G provided VGS, or its predecessor in interest, with comprehensive general-automobile liability (CG-A) and comprehensive general liability (CGL) policies continuously during the period from January 1, 1965 until January 1, 1979. VGS paid all required premiums for coverage under the policies during that period, and at no time during the period did VGS's coverage ever lapse or otherwise terminate. The parties have also stipulated to the policy numbers and coverage dates for each individual policy, as well as the limits of coverage for property damage under VGS's policies obtained from USF & G.

The policies provided coverage for bodily injury and property damage.² All policies had a notice provision which required an insured to provide written notice to the insurer if an accident occurs, a claim is made or suit is brought against the insured or in the event of an "occurrence."³ All policies also included a provision requiring the insurer to defend any suit against the insured which falls within the coverage of the policy.⁴

C. Procedural Posture

Plaintiff filed a motion for partial summary judgment requesting a court order requiring U.S.F. & G. to honor its obligation to defend by reimbursing previously incurred defense costs and providing an ongoing defense to the EPA claims while the declaratory judgment action is pending.

Both before and after plaintiff moved for partial summary judgment, defendants have responded to plaintiff's motion for declaratory judgment by moving for summary judgment. To summarize an ever burgeoning series of motions, briefs and responses, defendants claim that the letter of March 5, 1982 triggered plaintiff's duty to provide notice to its insurers. As plaintiff did not provide such notice, defendants claim that VGS has forfeited its right to coverage because notice was a condition precedent to any coverage. In support of this argument, defendants cite Houran v. Preferred Accident Ins. Co., 109 Vt. 258, 195 A. 253 (1938) and its progeny, which held that an insured's failure to comply with a notice provision in an insurance policy results in forfeiture of coverage.⁵

Plaintiff contends that the law of Vermont has evolved since Houran so that notice is no longer a condition precedent or if it is, defendants must prove that they were prejudiced by the lack of notice. More fundamental to plaintiff's partial summary judgment motion is plaintiff's contention that it is entitled to a defense of the EPA claims upon a showing that the claims fall within the policy coverage provision even though there exists an unresolved dispute about whether plaintiff was required to give notice in 1982.

This court issued a Case Management Order (CMO) (Paper # 93) on April 27, 1992 at the request of all parties save AEGIS. The CMO directs that, the court will not consider and dispose of the notice issue (raised by the defendant's motion for summary judgment) until either, (1) the court has decided plaintiff's motion for partial summary judgment or (2) the EPA has finalized its RI/FS.

Thus, the issue presently before the court is whether there is an obligation on USF & G's part to provide a defense for plaintiff in circumstances where notice was given and coverage called for but the insurer claims notice should have been given earlier, and was therefore untimely. The issue of whether this notice was timely or should have been given earlier than 1987 is not yet before the court.

III. DISCUSSION

A. Jurisdiction and Standard for Summary Judgment

The court has diversity jurisdiction over this case pursuant to 28 U.S.C. § 1332(a)(1) and is thus required to apply Vermont law as to all substantive issues. Erie R.R. Co. v. Tompkins, 304 U.S. 64, 78, 58 S.Ct. 817, 822, 82 L.Ed. 1188 (1938).

Summary judgment may be granted the moving party only when it shows that there is "no genuine issue of material fact and that the moving party is entitled to judgment as a matter of law." Fed.R.Civ.P. 56(c). In considering the motion, the court's responsibility is not to resolve disputed factual issues, but to determine whether there is a genuine issue to be tried. Rattner v. Netburn, 930 F.2d 204, 209 (2d Cir.1991). The court must draw all reasonable inferences in favor of the non-moving party and only grant summary judgment for the moving party if no reasonable trier of fact could find in favor of the non-moving party. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 247-52, 106 S.Ct. 2505, 2510-12, 91 L.Ed.2d 202 (1986).

B. Duty to Defend

1. Vermont Law

The duty of an insurance company to defend in an action is determined by comparing the...