Fireman's Fund Ins. Companies v. Ex-Cell-O Corp., 662 F. Supp. 71 (E.D. Mich. 1987)

*72 Jeffrey Silberfeld, Rivkin, Leff & Radler, Garden City, N.Y., Robt. S. Cubbin, Plunkett, Cooney, Rutt, Watters, Stanczyk & Pedersen, P.C., Detroit, Mich., for plaintiffs.

Robert B. Webster, Richard C. Sanders, Hill, Lewis, Adams, Goodrich & Tait, Detroit, Mich., for Ex-Cell-O, McCord and Davidson; Eugene R. Anderson, Avraham C. Moskowitz, Steven P. Vincent, Anderson, Russell, Kill & Olick, P.C., New York City, of counsel.

Raymond I. Foley, Jerome C. Gropman & Associates, Birmingham, Mich., Paul L. *73 Gingras and Thomas L. Hamlin, Robins, Zelle, Larson & Kaplan, Minneapolis, Minn., for Wausau Ins. Co.

Barry M. Kelman, Gofrank and Kelman, Southfield, Mich., for Travelers; H.G. Sparrow, III, Dickinson, Wright, Moon, Van Dusen & Freeman, Detroit, Mich., of counsel.

Stephen Ormond, Peter B. Kupelian, Southfield, Mich., for Zurich Am. Ins. Co.

Leonard B. Schwartz, Southfield, Mich., for Royal Indem.

Deborah A. Pitts, Robert A. Zeavin, Buchalter, Nemer, Fields, Chrystie & Younger, Los Angeles, Cal., for AIU Ins. Co. and Highland Ins. Co.

Stephen M. Kelley, Kitch, Saurbier, Drutchas, Wagner & Kenney, P.C., Detroit, Mich., Mitchell L. Lathrop, Adams, Duque & Hazeltine, San Diego, Cal., James R. Case, Kerr, Russell and Weber, Detroit, Mich., for St. Paul Fire & Marine Ins. Co.

Michael W. Hartmann, Miller, Canfield, Paddock & Stone, Detroit, Mich., Timothy C. Russell, Wilson M. Brown, III, Patricia A. Gotschalk, Drinker, Biddle & Reath, Washington, D.C., for Am. Motorists, Am. Manu. Mut. and Lumbermens Mut.

Charles C. Cheatham, Detroit, Mich., for American Employers Ins. Co.

David M. Tyler, Sullivan, Ward, Bone, Tyler, Fiott & Asher, Detroit, Mich., and Samuel B. Issacson, Pretzel, Stouffer, Chartered, Chicago, Ill., for Prudential Re-Ins. Co.

Thomas F. Myers, Garan, Lucow, Miller, Seward, Cooper & Becker, P.C. Detroit, Mich., and Andrea Sykes Foote, Lord, Bissell & Brook, Chicago, Ill., for Certain Underwriters at Lloyd's London and London Market Ins. Co.

Paul S. Koczkur, Harvey, Kruse, Westen & Milan, Detroit, Mich., for Mission Ins. Co., Mission Natl., and Integrity Ins. Co.

Bernard P. McClorey, Ronald G. Acho, T. Joseph Seward, Cummings, McClorey, Davis & Acho, Livonia, Mich., for Hartford Acc. and Indem. Ins. Co.

Scott L. Gorland, Claudia V. Babiarz, Pepper, Hamilton & Scheetz, Detroit, Mich., Stephen Jacobs, Siff, Newman, Rosen & Parker, New York City, for First State Ins. Co. New England Reinsurance Corp.

James N. Martin, Martin, Bacon & Martin, P.C., Mt. Clemens, Mich., Thomas G. McHugh, for Pacific Employers Ins. Co.

William Jamieson and David Bocan, Deneberg, Tuffley, Bocan, Jamieson, Black, Hopkins & Ewald, Southfield, Mich., for Northbrook Excess and Surplus Ins. Co. (NESCO) n/k/a Allstate Ins. Co.

J.R. Zanetti, Jr., Highland & Currier, P.C., Southfield, Mich., for Transport Indem. Co.

FEIKENS, District Judge.

Ex-Cell-O Corporation ("Ex-Cell-O"), its subsidiary McCord Gasket Corporation ("McCord"), and McCord's subsidiary Davidson Rubber Company ("Davidson") ("policyholders") move for partial summary judgment declaring the duty of Fireman's Fund Insurance Companies ("Fireman's Fund"), Wausau Insurance Companies ("Wausau"), and Zurich Insurance Company ("Zurich") ("primary insurers" or "insurers")^[1] to defend the policyholders against potential liability for allegedly contributing to environmental contamination at twenty-two locations. I have jurisdiction pursuant to 28 U.S.C. § 1332.

Each site requires clean-up of environmental damage. The critical question is who will pay for the work. Congress addressed the question in the Comprehensive Environmental Response, Compensation, and Liability Act ("CERCLA"), 42 U.S.C. §§ 9601-9657, which authorizes administrative and judicial proceedings to effect clean-up of contaminated sites and to compel contributions to the cost of clean-up by owners and operators of the sites, and by generators of materials dumped at the sites. Some states have enacted similar legislation.

*74 At least one government agency has taken or is contemplating action pursuant to these statutes at each site. The policyholders have received written notice, familiarly known as a "PRP letter," from a government agency that considers them potentially responsible for contamination at sixteen sites.^[2] From the owner or operator of four other sites, the policyholders have received written notice that an agency has taken action, and that the owner or operator considers the policyholders potentially responsible.^[3] The policyholders expect imminent agency action at one site.^[4] Finally, for one site, the policyholders are third-party defendants in a federal court action.^[5]

The policyholders seek a defense at each site. The insurers deny coverage. The insurers on the risk during the time the policyholders allegedly used each site are:

Site                    Alleged Use         Insurer
Alburn                  1982                Fireman's Fund
Cannons-Bridgewater*    9/74-6/78           Wausau
Cannons-Plymouth*       9/74-6/78           Wausau
Cardinal*               1965-1969           Travelers
                        1970-1978           Wausau
                        1979-1985           Fireman's Fund
                        1986-present        No known insurer
Charles George*         2/77-12/78          Wausau
                        1/79-8/79           Fireman's Fund
City Chemical           12/81               Fireman's Fund
Clare                   1966-1983           Fireman's Fund
Conservation*           8/75                Wausau
Davidson*               1967-1969           Travelers
                        1970-1978           Wausau
                        1979-1985           Fireman's Fund
                        1986-present        No known insurer
Dover*                  1955-1961           No known insurer
                        1962-1969           Travelers
                        1970-1978           Wausau
Enviro-Chem             8/21/81 & 12/1/81   Fireman's Fund
Keefe*                  1/14/77-12/31/78    Wausau
                        1/1/79-1/31/81      Fireman's Fund
Kingston (Ottati &      1965-1969           Travelers
Goss)*                  1970-1976           Wausau
Liquid Disposal         1979-1981           Fireman's Fund
Pagel's                 1/79-8/83           Fireman's Fund
QuVoe                   1983                Fireman's Fund
Re-Solve                3/80-10/80          Fireman's Fund
Silresim*               2/74-9/74 & 2/75    Wausau
Springfield             4/12/65-11/30/65    Zurich
                        12/1/65-7/31/67     Fireman's Fund
Tinkham Garage*         1978                Wausau
Union Chemical          1981-1984           Fireman's Fund
Wayne                   4/80-12/82          Fireman's Fund

Asterisked sites involve alleged dumping by McCord or Davidson prior to Ex-Cell-O's purchase of the companies in 1978. Ex-Cell-O contends that its own insurance policies, as well as the policies issued separately to McCord and Davidson, cover these sites, but it does not test this claim on its motion for partial summary judgment. Accordingly, the asterisked sites identify only the separate insurer for McCord or Davidson.

The policyholders purchased comprehensive general liability policies that define the insurers' duty to defend broadly. Fireman's Fund and Wausau use identical language:

[T]he Company shall have the right and duty to defend any such suit against the insured seeking damages on account of such bodily injury or property damage, even if any of the allegations of the suit are groundless, false or fraudulent, and may make such an investigation and settlement of any claim or suit as it deems expedient....

The Zurich policy is only slightly different:

[T]he company shall ... defend any such suit against the insured alleging such injury, sickness, disease or destruction and seeking damages on account thereof, even if such suit is groundless, false or fraudulent; but the company may make such investigation, negotiation and settlement of any claim or suit as it deems expedient....

The language obligates the insurers to defend any claim against the policyholders *75 "so long as the allegations against the insured even arguably come within the policy coverage." The Detroit Edison Company v. Michigan Mutual Insurance Company, 102 Mich.App. 136, 142, 301 N.W.2d 832 (1980) (emphasis original).

The insurers claim they have no duty to defend the environmental claims until the policyholders become defendants in a traditional lawsuit for money damages. The insurers construe their policies too narrowly: coverage does not hinge on the form of action taken or the nature of relief sought, but on an actual or threatened use of legal process to coerce payment or conduct by a policyholder. In United States Aviex Company v. Travelers Insurance Company, 125 Mich.App. 579, 586, 336 N.W.2d 838 (1983), an insured won judgment declaring its insurer's duty to defend based only on "threats of legal action" by the Michigan Department of Natural Resources. Later, the Michigan Attorney General filed a court action seeking an injunction directing the insured to clean up a chemical spill at its own expense. United States Aviex, 125 Mich.App. at 588, 336 N.W.2d 838. The court of appeals affirmed judgment against the insurer even though the Attorney General's suit sought only injunctive relief:

It is merely fortuitous ... that the state has chosen to have plaintiff remedy the contamination problem, rather than choosing to incur the costs of clean-up itself and then suing plaintiff to recover those costs.

United States Aviex, 125 Mich.App. at 590, 336 N.W.2d 838. Accordingly, I hold that a "suit" includes any effort to impose on the policyholders a liability ultimately enforceable by a court, and that "damages" include money spent to clean up environmental contamination.

The insurers also argue that the exclusion for damages to property owned by the policyholders precludes coverage.^[6] I hold that the exclusion does not preclude coverage because the claims at sites owned by the policyholders include property damage to adjoining landowners and to the public. See United States Aviex, 125 Mich. App. at 590-92, 336 N.W.2d 838 (coverage for damage to water beneath insured's property not precluded by the insured's property exclusion). Cf. Continental Insurance Companies v. Northeastern Pharmaceutical and Chemical Company, Inc., 811 F.2d 1180, 1187 (8th Cir. 1987) ("[R]elease of toxic wastes may cause `property damage' not only to the actual owner of the land, water, or air, but also to the state and federal governments....").

Wausau and Fireman's Fund also deny coverage because of a pollution exclusion contained in some of their policies:^[7]

This insurance does not apply ... to bodily injury or property damage arising out of the discharge, dispersal, release or escape of smoke, vapors, soot, fumes, acids, alkalis, toxic chemicals, liquids or gases, waste materials or other irritants, contaminants or pollutants into or upon the land, the atmosphere or any water course or body of water; but this exclusion does not apply if such discharge, dispersal, release or escape is sudden and accidental....

Application of the pollution exclusion depends exclusively upon the process by which pollutants entered the environment. See Jonesville Products, Inc. v. Transamerica Insurance Group, 156 Mich.App. 508, 512, 402 N.W.2d 46 (1986) ("The pollution exclusion focuses on the release of pollutants....") (emphasis original). The decisive inquiry is not whether the policyholders anticipated property damage, or *76 whether they regularly disposed of hazardous waste, but whether the pollutants entered the environment unexpectedly and unintentionally:^[8]

We find that the circuit court [in holding that the insurer had no duty to defend] failed to distinguish between the frequency of acts which resulted in the release of contaminants and plaintiff's [insured's] knowledge or notice of the release of pollutants as a result of those acts. The ... [underlying complaint] did not specify ... how the toxic wastes entered the ground. There may have been either intentional dumping or burial, unintentional spills or leaks from inadequate containers, or other accidents. The allegations ... are couched in general terms and encompass unintentional release into the ground.

....

The circuit court erred in finding that the allegation of "continuous" negligent discharge of waste ... took [the underlying complaint] ... out of defendant's [insurer's] exception for "sudden and accidental" release. It is possible that the releases could have been sudden, i.e., unexpected, and accidental, i.e., unintended, and thus outside the exclusion.

Jonesville, 156 Mich.App. at 512, 402 N.W.2d 46.

Application of this standard requires additional facts. Fireman's Fund and Wausau may not rely on the pollution exclusion to deny a defense until they are able to establish on a motion for summary judgment or at trial that the release of pollutants was expected or intended. See Jonesville, 156 Mich.App. at 513, 402 N.E.2d 46 ("[I]t was the duty of defendant [insurer] to undertake the defense until it could confine the claim to a recovery that the policy did not cover."); Detroit Edison, 102 Mich.App. at 142, 301 N.W.2d 832 (insurer liable for defense as long as claims against the policyholders even arguably fall within the policy).

Finally, the parties dispute the appropriate trigger of coverage. The policies cover occurrences within the policy period. I hold that each exposure of the environment to a pollutant constitutes an occurrence and triggers coverage. See Continental Insurance, 811 F.2d at 1189 ("We ... adopt the majority view that environmental damage occurs at the moment that hazardous wastes are improperly released."). This holding parallels the rule established in the analogous situation of insurance coverage for asbestos claims. Insurance Company of North America v. Forty-Eight Insulations, Inc., 451 F. Supp. 1230 (E.D.Mich.1978) (Feikens, J.), aff'd, 633 F.2d 1212 (6th Cir.1980), clarified on reh'g, 657 F.2d 814 (1981), cert. denied, 454 U.S. 1109, 102 S. Ct. 686, 70 L. Ed. 2d 650 (1981). See also Continental Insurance, 811 F.2d at 1190 (noting analogy between coverage issues in asbestos and environmental litigation).

The policyholders allegedly exposed the sites to pollutants during the periods recorded earlier in this opinion. An insurer on the risk during the period of alleged exposure is liable for the policyholders' defense in the proportion that the period it was on the risk bears to the total period of alleged exposure. See Forty-Eight Insulations, 451 F. Supp. at 1244. The policyholders must bear their own pro rata share of costs for any period during which they had no coverage or cannot identify the insurer. Id.

*77 Accordingly, the policyholders' motion for partial summary judgment is granted.

An appropriate order may be submitted.

[1] The policyholders have settled with Travelers Insurance Company.

[2] The sites are: Alburn, Cardinal, Charles George, City Chemical, Clare, Davidson, Enviro-Chem, Keefe, Liquid Disposal, Pagel's, Re-Solve, Silresim, Springfield, Wayne, Cannons-Bridgewater, and Cannons-Plymouth.

[3] The sites are: QuVoe, Tinkham Garage, Union, and Kingston.

[4] The site is Dover landfill. Stuart Affidavit, Exhibit O. Interestingly, Fireman's Fund alleges that the policyholders received a PRP letter for this site, and the policyholders' answer admits the allegation. First Amended Complaint at ¶ 47; Policyholders' Answer to First Amended Complaint at ¶ 31 (admitting ¶ 47 of the First Amended Complaint).

[5] The site is Conservation Chemical.

[6] Wausau and Fireman's Fund policies provide:

This insurance does not apply ... to property damage to (1) property owned or occupied by or rented to the insured, (2) property used by the insured, or (3) property in the care, custody or control of the insured or as to which the insured is for any purpose exercising physical control....

The Zurich policy similarly provides:

This policy does not apply ... to injury or destruction of (1) property owned or occupied by or rented to the insured....

[7] The pollution exclusion is part of every Wausau policy effective on or after January 1, 1972. It is part of every Fireman's Fund policy effective on or after November 30, 1973.

[8] The policies containing pollution exclusions generally cover any property damage caused by an occurrence:

"[O]ccurrence" means an accident, including continuous or repeated exposure to conditions, which results in bodily injury or property damage neither expected nor intended from the standpoint of the insured....

Application of this definition hinges upon whether the policyholders expected or intended property damage. See American States Insurance Company v. Maryland Casualty Co., 587 F. Supp. 1549, 1552-54 (E.D.Mich.1984) (Gilmore, J.) (occurrence policy provides no coverage for property damage caused by the insured's regular business practice of illegally dumping toxic wastes). An occurrence policy containing a pollution exclusion covers property damage caused by pollution only if both the property damage and the release of pollutants is unexpected and unintended.