Waste Management of Carolinas, Inc. v. Peerless Ins. Co.

• Decision Date: 18 February 1986
• Docket Number: No. 70PA85,70PA85
• Citation: 315 N.C. 688,340 S.E.2d 374
• Court: North Carolina Supreme Court
• Parties: , 24 ERC 1001, 17 Envtl. L. Rep. 20,145 WASTE MANAGEMENT OF CAROLINAS, INC., t/d/b/a Trash Removal Service, Inc. v. PEERLESS INSURANCE COMPANY and Pennsylvania National Mutual Casualty Insurance Company.

Page 374

340 S.E.2d 374

315 N.C. 688, 24 ERC 1001, 17 Envtl.

L. Rep. 20,145

WASTE MANAGEMENT OF CAROLINAS, INC., t/d/b/a Trash Removal Service, Inc. v. PEERLESS INSURANCE COMPANY and Pennsylvania National Mutual Casualty Insurance Company.

No. 70PA85.

Supreme Court of North Carolina.

Feb. 18, 1986.

Burney, Burney, Barefoot, Bain & Crouch by Auley M. Crouch III, Wilmington, and Hinshaw, Culbertson, Moelmann, Hoban & Fuller by D. Kendall Griffith, William J. Holloway and Joanna C. New, Chicago, Ill., for plaintiff-appellee.

Young, Moore, Henderson & Alvis, P.A. by Walter E. Brock, Jr., Raleigh, for Pennsylvania Nat. Mut. Cas. Ins. Co., defendant-appellant.

Prickett & Corpening by Carlton S. Prickett, Jr., Wilmington, for Peerless Insur. Co., defendant-appellant.

Bailey, Dixon, Wooten, McDonald, Fountain & Walker by J. Ruffin Bailey and Gary S. Parsons, Raleigh, for American Ins. Ass'n and Alliance of American Insurers, amici curiae.

John C. Russell, New York City, for Eugene R. Anderson, amicus curiae.

Brooks, Pierce, McLendon, Humphrey & Leonard by John L. Sarratt, Greensboro, and Mendes & Mount by John G. McAndrews and Henry Lee, New York City, for George Haycroft Milton and Underwriters at Lloyd's, London, amici curiae.

MARTIN, Justice.

On 11 January 1980, the United States of America filed an action against Waste Industries and others, including the owners, operators, and the franchisor of the Flemington landfill in New Hanover County, alleging that waste material disposed of on that landfill had leached into and contaminated groundwater beneath it, rendering the well water in several surrounding households hazardous for human consumption. ¹ The suit, based upon section 504 of the Resource Conservation and Recovery Act, sought injunctive and monetary relief.

The owners and operators of the landfill and the county, its franchisor, filed third-party complaints against Trash Removal Services, Inc. (TRS), among others, seeking indemnity for or contribution to whatever liability they incurred in the federal suit. The three third-party complaints alleged that, in delivering quantities of solid waste materials to the landfill, TRS had represented that the material was not hazardous or contaminated. The complaints also alleged that if the allegations in the federal suit proved to be true, TRS had been careless and negligent in its having transported and disposed of solid and hazardous wastes in the Flemington landfill and that TRS had not taken proper care to prevent the deposit of such waste materials there.

TRS, which hauls and disposes of local residential and industrial waste materials, had used the Flemington landfill from 1973 [315 N.C. 690] to 1979. During that period TRS was covered by two successive liability insurance policies, one with Peerless Insurance Company (Peerless), from 12 August 1974 to 12 August 1979, the other with Pennsylvania National Mutual Casualty Insurance Company (Penn), from 17 June 1979 through 17 June 1980. Both policies provided that under certain circumstances the insurers had a duty to defend suits against the insured. TRS therefore requested defense of the suit for contribution or indemnity from Peerless and Penn. Both insurers denied that either a duty to defend or an obligation to indemnify the owners and operators of the landfill arose under the allegations and facts of the underlying action. TRS then filed this declaratory judgment action seeking a determination of the parties' rights and obligations under the policies. The parties filed cross-motions for summary judgment focused upon the scope of the coverage language in the policies.

The trial court granted summary judgment to Peerless and Penn and denied the same to TRS. The latter appealed. The Court of Appeals reversed, finding that the facts as alleged in the third-party complaints did not foreclose the possibility that TRS's potential liability came within the policies' coverage and that this possibility obligated the insurers to defend TRS in suits initiated by the third-party complaints. For the reasons set out below, the decision of the Court of Appeals is reversed.

This case is here on appeal from the Court of Appeals' reversal of summary judgment for appellant insurance companies. In reviewing the propriety of summary judgment, the appellate court is restricted to assessing the record before it. Vassey v. Burch, 301 N.C. 68, 74, 269 S.E.2d 137, 141 (1980). Only those pleadings and other materials that have been considered by the trial court for purposes of summary judgment and that appear in the record on appeal are subject to appellate review. If on the basis of that record it is clear that no genuine issue of material fact existed and that the movant was entitled to judgment as a matter of law, summary judgment was appropriately granted. Kessing v. Mortgage Corp., 278 N.C. 523, 180 S.E.2d 823 (1971).

In this case, both parties originally filed cross-motions for summary judgment based upon the coverage language of the insurance policies. The parties did not dispute either the language of the policies or the presence of certain allegations in the third- party complaints. The sole point of their contention was the scope of the policy provisions. Resolution of this issue involves construing the language of the coverage, its exclusions and exceptions, and determining whether events as alleged in the pleadings and papers before the court are covered by the policies. As such, it is an appropriate subject for summary judgment.

The scope of review by this Court is limited by the nature of the question before it, i.e., whether the appellant companies have a duty to defend appellee TRS in the federal lawsuit. Generally speaking, the insurer's duty to defend the insured is broader than its obligation to pay damages incurred by events covered by a particular policy. An insurer's duty to defend is ordinarily measured by the facts as alleged in the pleadings; its duty to pay is measured by the facts ultimately determined at trial. When the pleadings state facts demonstrating that the alleged injury is covered by the policy, then the insurer has a duty to defend, whether or not the insured is ultimately liable. Strickland v. Hughes, 273 N.C. 481, 487, 160 S.E.2d 313, 318 (1968); 7C J. Appleman, Insurance Law and Practice § 4683 (1979 & Supp.1984). ² Conversely, when the pleadings allege facts indicating that the event in question is not covered, and the insurer has no knowledge that the facts are otherwise, then it is not bound to defend.

Where the insurer knows or could reasonably ascertain facts that, if proven, would be covered by its policy, the duty to defend is not dismissed because the facts alleged in a third-party complaint appear to be outside coverage, or within a policy exception to coverage. 7C J. Appleman, Insurance Law and Practice § 4683. In this event, the insurer's refusal to defend is at his own peril: if the evidence subsequently presented at trial reveals that the events are covered, the insurer will be responsible for the cost of the defense. Id. See also Hartford Accident & Indem. Co. v. Aetna Life & Cas. Co., 98 N.J. 18, 483 A.2d 402 (1984): "This is not to free the carrier from its covenant to defend, but rather to translate its obligation into one to reimburse the insured if it is later adjudged that the claim was one within the policy covenant to pay." Id. at 23-24, 483 A.2d at 406. In addition, may jurisdictions have recognized that the modern acceptance of notice pleading and of the plasticity of pleadings in general imposes upon the insurer a duty to investigate and evaluate facts expressed or implied in the third-party complaint as well as facts learned from the insured and from other sources. Even though the insurer is bound by the policy to defend "groundless, false or fraudulent" lawsuits filed against the insured, if the facts are not even arguably covered by the policy, then the insurer has no duty to defend. See generally 14 Couch on Insurance 2d § 51:46 (rev. ed. 1982); 7C J. Appleman, Insurance Law and Practice § 4684.01.

The critical inquiry for this Court, then, is whether the facts in this suit to determine defendants' duty to defend the federal case against TRS concern an event that is covered by the policies appellee TRS held with appellant insurance companies.

The briefs and portions of the record before this Court include parts of three third-party complaints and a deposition. Although TRS's answer is not before us, counsel for TRS said in response to our question during oral argument that it had denied the allegations in the complaints.

Stripped to their essentials, these complaints allege the intentional disposal by TRS of solid wastes during the six-year period of the landfill's operation which contributed to the contamination of groundwater beneath the landfill. They allege that the "contributions and negligent acts and omissions" by TRS and other named trash haulers constituted the "sole and proximate cause of any contamination of the aquifer and water supply in the Flemington area...." The complaints do not allege that the dumping or the contamination occurred either suddenly or accidentally; indeed, the facts alleged suggest a gradual seepage of contaminants into the aquifer.

The deposition of Gerald McKeithan, an officer of TRS, described the trash collection process and noted that eight or ten of TRS's customers were manufacturing concerns. McKeithan indicated that all customers had been verbally informed that TRS did not handle chemical or hazardous wastes but that this instruction was never incorporated into contracts or otherwise put in writing during the period that the landfill was alleged to have been in operation. McKeithan agreed with deposing counsel that he did not consider the dumping to have been "accidental," that it had been both "expected" and "intended." Absent from the deposition, as from the complaints, is any suggestion...