Hazen Paper Co. v. United States Fidelity & Guaranty Co.

No. 86-1679 (Mass. Super. Ct. January 10, 1989)

The court holds that comprehensive general liability insurance covers liability for response costs under the Comprehensive Environmental Response, Compensation, and Liability Act and the Massachusetts Oil and Hazardous Materials Release, Prevention, and Response Act. The court first holds that the insurer's duty to defend the insured corporation is triggered when environmental regulators have written to the insured corporation alleging its liability, even though they have not yet filed suit against the corporation. The court next holds that under Massachusetts law cleanup costs are "damages" within the meaning of a comprehensive general liability insurance policy. Moreover, because the hazardous waste seepage was unintentional, it was an "accident" and an "occurrence" within the meaning of the insurance policy. Finally, as a matter of public policy, finding that insurance coverage is provided will aid the federal and state governments' programs to clean up hazardous waste.

Counsel for Plaintiff
Paul Ware, Nancer Ballard
Goodwin, Procter & Hoar
Exchange Place, Boston MA 02109-2881
(617) 570-1000

Counsel for Defendant
David Goodrich
Donovan & O'Connor
P.O. Box 230, Adams MA 01220
(413) 743-3200

[19 ELR 20364]

Mathers, J.:

Memorandum of Decision and Order on Parties' Cross Motions for Summary Judgment

Background

This matter is before the court on the parties' cross motions for summary judgment. Hazen Paper Company ("Hazen") has brought suit against its comprehensive general liability ("CGL") insurer, United States Fidelity and Guaranty Company ("USF&G") for breach of contract based on USF&G's failure to defend and settle claims brought against Hazen by the United States Environmental Protection Agency ("EPA") under the Comprehensive Environmental Response Compensation and Liability Act ("CERCLA"), 42 U.S.C. § 9600 et seq., and the Massachusetts Department of Environmental Quality Engineering ("DEQE") under the Massachusetts Oil and Hazardous Materials Release, Prevention, and Response Act, M.G.L. c.21E. These claims were brought in connection with environmental pollution found at a facility to which Hazen sent solvents for recycling. Hazen now moves for summary judgment and for a declaration that USF&G is obligated to indemnify and pay on behalf of Hazen any sums for which Hazen is liable as a result of the EPA's and the DEQE's claims. USF&G disclaims liability for coverage under the contract and moves for summary judgment in its favor.

In the present case USF&G claims that it is not required to defend Hazen because no lawsuit has been filed against the paper company seeking damages of the type covered by the policy. According to USF&G, letters sent by the EPA and the DEQE to Hazen alleging liability and seeking reimbursement for cleanup costs at the solvent recycling site do not constitute a "lawsuit" within the duty to defend or the duty to indemnify provisions of its policy with Hazen. Furthermore, USF&G alleges that the "damages" covered by the policy do not include cleanup costs expended by the state or federal government at a hazardous waste site. It also claims that there was no "occurrence" at the site which would trigger insurance [19 ELR 20365] coverage. Finally, USF&G alleges that various coverage exclusions may apply that would relieve it of any duty to defend or indemnify Hazen in any legal proceeding.

Hazen claims that the enforcement proceedings brought against it by the EPA and the DEQE involve legal liability of the type that is covered by its contract with USF&G.

Discussion

"Summary Judgment is a 'device' to make possible the prompt disposition of controversies on their merits without a trial, if in essence there is no real dispute as to the salient facts or if only a question of law is involved." Cassesso v. Commissioner of Correction,390 Mass. 419, 422 (1984), quoting Community National Bank v. Dawes, 369 Mass. 550, 553 (1976). Summary judgment "shall be rendered . . . [if] there is no genuine issue of material fact and . . . the moving party is entitled to a judgment as a matter of law." Community National Bank v. Dawes, 369 Mass. at 553. When a court reviews the materials accompanying a motion for summary judgment, the inferences to be drawn from the underlying facts contained in such materials must be viewed in the light most favorable to the party opposing the motion. Attorney General v. Bailey, 386 Mass. 367, 471 (1982), quoting Hub Associates v. Goode, 357 Mass. 449, 451 (1970). In addition, all doubt as to the existence of a genuine issue of material fact must be resolved against the party moving for summary judgment. Community National Bank, 369 Mass. at 554.

The issue of CGL insurance coverage in EPA or DEQE enforcement proceedings has not yet been addressed in Massachusetts. Case law in other jurisdictions is sharply divided on the issue.

Several courts have found that the word "damages" in comprehensive general liability insurance contracts does not include cleanup cost reimbursements and have denied coverage. See e.g., Continental Ins. Co. v. Northeastern Pharm. & Chem. Co., Inc., 842 F.2d 977 [18 ELR 20819] (8th Cir. 1988); Maryland Cas. Co. v. Armco, Inc., 822 F.2d 1348 [17 ELR 21277] (4th Cir. 1987). Other courts have construed the same terminology to find coverage under CGL insurance policies. See e.g., New Castle County v. Hartford Acc. & Indem. Co., 673 F. Supp. 1359 (D. Del. 1987); Fireman's Fund Ins. Co. v. Ex-Cell-O Corp., 662 F. Supp. 7 (E.D. Mich. 1987).

The issue of whether an EPA enforcement proceeding constitutes a "lawsuit" for the purposes of CGL insurance coverage has been addressed by at least one court. In Fireman's Fund, the court found that an insurance company did owe an insured coverage where the EPA brought enforcement proceedings, and stated that a "lawsuit" "includes any effort to impose on the policyholders a liability ultimately enforceable by a court. . . ." Id. at 75.

General principles of insurance law require this court to adopt any reasonable construction of an insurance policy that affords coverage to the insured. American Home Assurance Co. v. Libbey-Owens Ford Co., 786 F.2d 22, 26 (1st Cir. 1986). Specifically, interpretation of the terms of this insurance contract is governed by Massachusetts law. Therefore, it is useful to examine Massachusetts case law on related claims for instruction in construing USF&G's obligations to Hazen.

In Liberty Mutual Ins. Co. v. Continental Casualty Co., 771 F.2d 579 (1st Cir. 1985), an insurer was found in breach of its duty to defend where it refused to assist in pre-lawsuit settlement negotiations involving the liability of a window installer for defective window panels in the John Hancock Building. According to the court, the near certainty that a lawsuit would ultimately be filed, as well as the fact that the window installer had little choice but to retain counsel and prepare to defend itself in the settlement negotiations, were sufficient to incur the insurer's duty to defend despite the absence of the filing of a formal lawsuit.

In Keith Fulton & Sons, Inc. v. Continental Ins. Co., 273 F. Supp. 486 (D. Mass. 1967), the plaintiff trucking company paid a claim against it arising out of a collision, although no formal lawsuit had been filed. Fulton's insurance company refused to reimburse him for paying on the claim. Although the insurance policy in this case did not contain a clause obliging the insurance company to defend and indemnify in the case of a "lawsuit" only, the court's language is helpful in determining Massachusetts law in this area. In ruling in favor of the plaintiff, the court stated that it is a violation of public policy to require an insured to withhold payment from a claimant until after it has gone through the motions of inviting and answering a lawsuit. According to the court, this only increases liability by interest costs and costs of litigation.

Defendant relies on Marvel Heat Corp. v. Travelers Indemnity Co., 325 Mass. 682 (1950). In that case, an insurer was not required to defend and indemnify an insured where no legal action of any type was filed against the insured and, after the insurer disclaimed liability, the insured hired its own lawyer and settled the claim against it.

Marvel Heat is not applicable to the case presently before the court. In Marvel Heat the court found that, since the policy stated that the insured shall not voluntarily make any payment, assume any obligation or incur any expense, except at his own cost, the insurer did not have to reimburse the insured of the cost of the settlement. Furthermore, no legal proceeding of any type was ever instigated against the insured in Marvel Heat. In the present case, legally enforceable proceedings have been filed against Hazen, and Hazen is not seeking reimbursement for a settlement which it made voluntarily through its own counsel and independent of its insurer.

Therefore, this court finds that, in Massachusetts, EPA and DEQE enforcement proceedings do constitute a "lawsuit" within the meaning of a CGL policy. The court in Liberty Mutual invoked coverage without the filing of a formal lawsuit because it found that a lawsuit was imminent. Similarly, in the present case, if Hazen refuses to contribute to the costs of cleaning up the Re-Solve site, the EPA can bring a lawsuit to force them to do so. Furthermore, companies who did contribute to the cleanup costs can bring actions against Hazen for reimbursement for the share that they paid but should have been paid by Hazen.

USF&G argues that cleanup costs are not "damages" within the meaning of the CGL policy because they are better characterized as claims for equitable relief. This court disagrees and follows those courts that have applied a broader definition to "damages" in this context. See e.g., New Castle County v. Hartford Acc. and Indem. Co., 673 F. Supp. 1359 (D. Del. 1987); Fireman's Fund Ins. Co. v. Ex-Cell-O Corp., 662 F. Supp. 71 (E.D. Mich. 1987). Under Massachusetts law, therefore, cleanup costs for injury to natural resources do constitute "property damages" within the coverage of a CGL policy.

USF&G's argument that there was no "occurrence" within the meaning of the CGL policy at the Re-Solve site is unpersuasive. This court finds that there is no indication that Hazen intended its solvents to be released into the environment and, therefore, the seepage was an "accident" within the meaning of "occurrence" as described by the policies.

Additionally, this court finds that none of the policy exclusions raised by USF&G is applicable to the present case.

Finally, public policy requires a finding that the enforcement proceedings brought by the EPA and the DEQE incur the kind of legal liability which is covered by a comprehensive general liability insurance policy. Federal and state environmental cleanup efforts would be greatly and dangerously impaired if insurers are permitted to deny coverage to parties responsible for the pollution until those parties are sued in court for the cost of the cleanup. Both CERCLA and the Massachusetts Oil and Hazardous Materials Release, Prevention, and Response Act, were enacted to provide prompt response and relief to areas polluted by hazardous waste. Part of this effort includes imposing legal liability upon responsible parties for the costs of cleaning up polluted areas without requiring government agencies to go through the time-consuming and costly procedure of filing a formal lawsuit against such parties. Such a requirement would only serve to frustrate the purpose of these statutes.

Order

For the reasons set forth above, the plaintiff's Motion for Summary Judgment is ALLOWED, and the defendants Cross Motion for Summary Judgment is DENIED.

It is further ORDERED that a declaratory judgment enter declaring that the defendant, USF&G, is obligated to indemnify and pay on behalf of Hazen any sums for which Hazen is liable as a result of the EPA's and the DEQE's claims.