i mar 2~ 2uu; · table of contents table ofauthorities ..... iii
TRANSCRIPT
~- - ft~ -_IV ~middot~~])
t~ oamp_ampllWamp~ UNITED STATES DISTRICT COURT
DISTRICT OF RHODE ISLAND I MAR 2~ 2UU ~ Illcox Pirozzolo ampMcCarth]
EMHART INDUSTRIES INC
Plaintiff
v
HOME INSURANCE COMPANY INSURANCE COMPANY OF NORTH AMERICA LffiERTY MUTUAL INSURANCE COMPANY NORTH RIVER INSURANCE COMPANY ONEBEACON AMERICA INSURANCE COMPANY and UNITED STATES FIRE INSURANCE COMPANY
Defendants ) ________________________________)
PLAINTIFFS COMBINED REPLY MEMORANDUM IN SUPPORT OF ITS MOTION FOR PARTIAL SUMMARY JUDGMENT AND
IN OPPOSITION TO DEFENDANTS MOTIONS FOR SUMMARY JUDGMENT
) ) ) ) ) ) Civil Action ) No 02-053-S ) I
) )
I
) ) middot~ ) )
)
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TABLE OF CONTENTS
Table ofAuthorities iii
Introduction - ~ 1
I PRELTh1INARY ISSUES 3
A_ Rhode Island Law Applies - 3 ~
1 The Interest-Weighing Approach Applies in Contract Actions 3
I
2 Under The Interest-Weighing Approach Rhode Island Law Applies 9 lo
B Emhart Succeeded To The Rights OfThe Insureds 12 F
L
r-IT OCCURRENCES TRIGGERING EACH POLICY 16 t
Fc IA Background To Occurrence Trigger And Pollution Exclusion 16 I
1 The Relevant State OfEnvironmental Knowledge 16 I
I I
I
2 The Manufacture OfHexachlorophene By Metro-Atlantic 18 I
3 Later Knowledge Regarding Hexachlorophene And Dioxin 18 f 4 Fires And Other Abrupt Releases At The Site 21 ~ 5 Other Contaminants 22
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue ~ middot 23
1 Policies Cover Unintended Injury Caused By Intentional Acts 23
2 Intent Is Determined By A Subjective Test 26
3 There Are Material Questions OfFact Regarding Occurrence 27
C The Insurers Are NotEntitled To Summary Judgment On Trigger 30 F
1 Fact Questions Exist As To Each Element OfThe == Discoverability Trigger ~ 30
_ shy
f---~ccc I
a There Was Property Damage 3 0 I
b _The Dioxin Was Capable OfDetection 31
c There Was Reason To Test 32
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2 Rhode Island Would Adopt The Continuous Trigger 34
3 The Liberty Mutual Policies Were Triggered 34
ill THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE 35
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty Mutual Of Its Duty To Defend bull 35
B Fact Questions Preclude Summary Judgment Onindemnification 37
C The INA Exclusion OfWaste Products Is Iriapplicable 38
1 INA Is Required To Defend 39
2 Fact Questions Preclude Summary Judgment On Indemnification 40 [
D On~ Beacon May Not Retroactively Insert A P~llutionExclusion Into Its Policy 41 ~
I N EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS I
THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY I
DAMAGE AND OWNED PROPERTY 43 I
A The PRP Letter And Unilateral Orders Are The Functional Equivalent I
OfSuits For Damages On Account OfProperty Damage 43 E ~
B Rental Property Exclusions Do Not Bar Coverage 47
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO ])EFEND 48
A INA Is Required To Pay Defense Costs ~ 48
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual 50
1 Issues Regarding Allocation Should Not Be Considered Now 51
2 Liability Among The Insurers Is Joint And Several 52
C Because OfTheir Breach OfThe Duty To Defend Both Insurers Must IndemnifY Emhart 53
Conclusion 55
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TABLE OF AUTHORITIES
A C Beals Co v Rhode Island Hosp 292 A2d 865 (RI 1971) 5
A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298 middot (D Mass 1990) 9
AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 (Iowa 1991) 45
Aerojet-General Corp v San Mateo County Superior Court 257 Cal Rptr 621 (Cal Ct App 1989) 45
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (BD Mich 1995) 9-10
Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421 (BD Mich 1998) 25
Aetna Cas amp Sur Co v Dow Chern Co 44 F Supp 2d 865 (BD Mich 1999) 28
Aetna Cas amp Sur Co v Kelly 889 F Supp 535 (RI 1995) 16
Afcan v Mut Fire Marine ampInland Ins Co 595 P2d 638 (Alaska 1979) 54
Allstate Ins Co v Quinn Constr Co 713 F Supp 35 (D Mass 1989) vacated as a result ofsettlement 784 F Supp 927 (D Mass~ 1990) 47-48
Allstate Ins Co v Russo 641 A2d 1304 (RI 1994) 39
American Home Assurance Co v Libbey-Owens-Ford Co 786 F2d 22 (1st Cir 1986) 33
Associates in Anesthesia Inc v Mut Benefit Life Ins Co 504 A2d 477 (RI 1986) 41-42
Baker v Hanover Ins Co 568 A2d 1023 (RI 1990) 7
Bartholomew v Ins Co ofN Am 502 F Supp 246 (DRI 1980) 7-8 ~ r~~
IBoeing Co v Aetna Cas amp Sur Co 784P2d 507 (Wash 1990) (en bane) 45 I
I i
Borg-Warner Corp v Ins Co ofN Am 174 AD2d 24 (App Civ 1993) 25
Brown v Church ofthe Holy Name ofJesus 252 A2d 176 (RI 1969) 5 7
iii
E-002002006004
Brunswick Corp v St Paul Fire amp Marine Ins Co 509 F Supp 750 (BD Pa 1981) 15
Buell Indus Inc v Greater NY Mut Ins Co 791 A2d 489 (Conn 2002) 38
Canron Inc v Fed Ins Co 918 P2d 937 (Wash Ct App 1996) 9
Chesapeake Util Corp v Am Home Assurance Co 704 F Supp 551 (D Del 1989) 9 11
Chicago Bridge amp Iron Co v Certain Underwriters at Lloyds London 797 NE2d 434 (Mass Ct App 2003) 52-53
Cincinnati Companies v W Am Ins Co 701 NE2d 499 (Til 1998) 49
Comunale v Traders amp General Ins Co 28 P2d 198 (Cal 1958) 54
ConanicutMarine Services Inc v Ins Co ofN Am 511 A2d 967 (RI 1986) 1 53-55
Cooley v John M Anderson Co 443 A2d 435 (RI 1982) 52
CPC Intl Inc v Northbrook Excess amp Surplus Ins Co 668 F2d 647 (RI 1995) 33 46
Crellin Technologies Inc v Equipmentlease Corp 18 F3d 1 (1st Cir 1994) 6
Curran Composites Inc v Liberty Mut Ins Co 874 F Supp 261 (Wb Mo 1994) 9 11
Doe v Liberty Mut Ins Co 667 NE2d 1149 (Mass 1997) 23
Eagle-Picher Indus Inc v Liberty Mut Ins Co 682 F2d 12 (1st Cir 1982) 33
Eagle-Picher Indus bull Inc v Liberty Mut Ins Co 829 F2d 227 (1st Cir 1987) 8 12
Edo Corp v Newark Ins Co 1997 WL 76575 (D Conn 1997) 10
Ellis v RI Pub Transit Authority 586 A2d 1055 RI 1991) 52
Flori v Allstate Insmiddot Co 388 A2d 25 (RI 1978) 1
Friendly Home Inc v Shareholders and Creditors ofRoyal Homestead middot Land Co 477 A2d 934 (RI 1984) 14
Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) 8
iv
E-002002006005
r
Gilbert Spruance v Pennsylvania Mfr Assn Ins Co 629 A2d 885 (NJ 1993) 9
Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 (Ohio 2002) 53
Gordonv Clifford Metal Sales Co 602 A2d 535 (RI 1992) 4-5
Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) 11
Great Lakes Container Corp v Natl Union Fire Ins Co 727 F 2d 30 (1st Cir 1984) 25
Grenga v National Surety Corp 317 A2d 433 (RI 1974) ~ 23
Gulf Chern amp Metallurgical Corp v Assoc Metals amp Minerals Corp 1 F3d 365 (5th Cir 1993) 51
Hartford Accident amp Indem Co v Dana Corp 690 NE2d 285 (Ind Ct App middot1998) 45
Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) ~ 7-8 11
Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d 576 (Mass 1990) 43-45
Herbert A Sullivan Inc v Utica Mut Ins Co 778 NE2d 522 (Mass 2003) 37
Hopkins v Equitable Life Assurance Society 270 A2d 915 (RI 1970) 41
Imperial Enterprises Inc V Firemans Fund Ins Co 535 F2d 287 (5th Cir 1976) 15
Insurance Co ofNorth America v Kayser-Roth Corp 1999 WL 813661 (RI Super Ct July 29 1999) 7-8
Insurance Co ofNorth America v Kayser-Roth Cor_p 770 A2d 403 (RI 2001) 31 44
James Graham Brown Foundation Inc V St Paul Fire amp Marine Ins Co 814 SW2d 273 (Ky 1991) 26
JH France Refractories Co v Allstate Ins Co 626 A2d 502 (Penn 1993) 52
Joy Technologies Inc v Liberty Mut Ins Co 421 SE2d 493 (W Va 1992) 9
Keene Cor_p v Ins Co ofN Am 667 F2d 1034 (DC Cir 1981) 52
~ ~~
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KnollPharm Co v Automobile Ins Co ofHartford 167 F Supp 2d 1004 (ND Dl-2001) _ 15
LE Myers Co v Harbor Ins Co 394 NE2d 1200 (Til 1979) 43
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass May 17 2002) 10
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass Dec 5 2003) 24-28 46
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass Jati 27 2004) 24 27 r
LumbermensMut Cas Co v Belleville Indus 938 F2d 1423 (1st Cir 1991) 40-41 t
Maiorana v MacDonald 596 F2d 1072 (1st Cir 1979) 42
Magnum Defense~ Inc v Harbour Group Ltd 248 F Supp 2d 64 (DRI 2003) 4 f
I
Mapco Alaska Petroleum v Cent Natl Ins Co ofOmah~ 795 F Supp 941 (D Alaska 1991) 9
Marshall Contractors Inc v Peerless Ins Co 827 F Supp 91 (DRI1993) 7 i fMelville v Am Home Assurance Co 584 F2d 1306 (3d Cir 1978) 8
IMichaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI 1994) 7 53-54
Millipore Corp v Travelers Indemnity Co 115 F3d 21 (1st Cir 1997) 10
Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co ~ 230 A2d 21 (Conn_l967) _ 54
Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 (D Nev 1996) 9 ~
Montaup Electric Co v Ohio Brass Corp 561 F Supp 740 (DRI 1983) 7 r
~
~-shy
1
Mortonlntl v Aetna Cas amp Sur Co 666NE2d 1163 (Ohio Ct App 1995) 9
Mottola v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) 29
Najarian v Natl Amusements Inc 768 A2d 1253 (RI 2001) 4-5 I
NatlAm Ins Co v Jamison Agency Inc 501 F2d 1125 (8thCir 1974) 14-15
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E-002002006007
Nationwide Mut Fire Ins Co v Beville 825 So2d 999 (Fla App 2002) ~ 49
Nashua Corp v First State Inc Co 648 NE2d 1272 (1995) 3637
Nortek Inc v Liberty Mut Ins Co 858 F Supp 1231 (DRI 1994)7 48 51
N States Power Co v Fidelity amp Cas Co ofNY 504 NW2d 240 (Minn Ct App 1993) 45
Northville Indus Corp v Natl Union Fire Ins Co 679 NE2d 1044 (NY 1997) 38
Olin Corp v Ins Co ofN Am 221 F3d 307 (2d Cir 2000) 25
Owens-Illinois Inc v United Ins Co 650 A2d 974 (NJ 1994) 52-53
Paxton amp Vierling Steel Co v Great Am Ins Co 497 F Supp 573 (D Neb 1980) middot middot 15
Peerless Ins Co v Viegas 667 A2d 785 (RI 1995) 23 41
Preferred Mut Inc Co v Gamache 686 NE2d 989 (Mass 1997) 24
Pressman v Aetna Cas amp Sur Co 574 A2d 757 (RI 1990) 34 47
Providence Journal Co v Travelers Indem Co 938 F Supp 1066 (DRI 1996) ~ 27
Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 F Supp 1278 (D Utah 1994) 28
Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 (Mass 1984) 24
Reichhold Chern Inc v Hartford Accident amp Indem Co 703 A2d 1132 (Conn 1997) 10
Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 (RI Super 1998) 52
RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994) 52
Rogan v Auto-Owners Ins Co 832 P2d 212 (Ariz Ct App 1992) 54
St Paul Fire amp Marine Inc Co v McCormick amp Baxter CreosotingCo 923 P2d 1200 (Mich 1995) - 26
St Paul Fire amp Marine Inc Co v Thomas 273 So2d 117 (Fla Ct App 1973) 54
vii
E-002002006008
St Paul Fire amp Marine Ins Co v Warwick Dyeing Corp 26 F3d 1195 (1st Cir 1994) 27
Samson y Transamerica Ins Co 636 P2d 32 (Cal 1981) 54
Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir 1988) 10
Sauerv Homeindem Co 841 A2d 176 (Alaska 1991) 54
Security Ins Co ofHartford v Lumbermens Mut Cas Co 826 A2d 107 (Conn 2003) 52
fShapiro v Associated lntl ins 899 F2d 1116 11th Cir 1990) 8 I
Shell Oil Co v Winterthur Swiss Inc Co 12 Cal App 4th 715 (1993) 25-26
Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 (Md 1997) ~ 49 ~
Smartfoods Inc V Northbrook Property amp Cas Co 618 NE2d 1365 ~ [
(Mass Ct App 1993) 24
Smith v Hughes Aircraft Co 22 F3d 1432 1439-40 9th Cir 1993) 37
State exrel Davidson v Hoke 532 SE2d 50 (WVa 2000) 27
State ofVermont v CNAins Companies 779 A2d 662 (Vt 2001) 24 26
State Mut Life Assurance Co ofAm v Lumbermens Mut Cas Co 874 F Supp 451 (D Mass 1995) 28
SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631 (DRI 1987) 8
Tecumseh Prod Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) 25
Texas Property amp Cas Ins Guar Assoc v Southwest Aggregates Inc 982 SW2d 600 (Tex Ct App 1999) 51
Textron Inc v Aetna Cas amp Sur Co 723 A2d 1136 (RI 1994) 31-34
Textron Inc v Aetna Cas amp Sur Co 754 A2d 742 (RI 2000) 27 30-33 35-38
TPLC Inc v United Natl Ins Co 44 F3d 1484 (lOth Cir 1995) 52
Travelers Ins Co v Waltham Indus Lab Corp 883 F2d 1092 middot (1st Cir 1989) 26
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E-002002006009
Truck Ins Exchange v Vanport Homes Inc 58 P3d 276 (Wash 2002) 49
Trustees ofTufts Univ v Commerical Union Ins Co 616 NE2d 68 (Mass 1993) 34-35
Union Sav Bankv DeMarco 254 A2d 81 (RI 1969) 6-7
United Brass Works Inc v ArnmiddotGuar amp Liab Ins Co 819 F Supp 465 (WD Pa 1992) middot 11
Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass Ct App 1999) 25
Village ofMorrisville Water amp Light Dept v US Fid amp Guar 775 F Supp 718 (D Vt 1991) 26
Woodward v Stewart 243 A2d 917 (RI 1968) 5 7
Zarrella y MinnesotaMut Life Ins Co 824 A2d 1249 (RI 2003) ~ 6
Other Authority
Websters Third New Intl Dictionazy (unabridged) 2580 (1993) 39
L_
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INTRODUCTION
Emhart Industries Inc (Emhart) seeks insurance coverage from Liberty Mutual
Insurance Company (Liberty Mutual) Insurance Company ofNorth America (INA)
OneBeacon America Insurance Company (OneBeacon) and North River Insurance Company
(North River) for claims by the Environmental Protection Agency (EPA) for remediation of
the Centredale Manor Superfund Site (Site) in North Providence Rhode Island The INA
policy was in effect from late 1968 into 1970 and the OneBeacon policy was excess to it during
most of that period The Liberty Mutual policies were in effect from 1971 through 1979 North
River wrote an excess policy for the 1984 calendar year The policies provide occurrence-based
property coverage The INA and Liberty Mutual policies also include a defense obligation (see
Emharts opening memorandum (Em Mem) at 12 13-14)
Emhart moved for summary judgment against Liberty Mutual and INA on the ground
that they were in breach of the duty to defend The charging documents including a PRP letter
and two unilateral orders demonstrate the reasonable possibility of coverage under the policies
the duty to defend thus exists See Flori v Allstate Ins Co 388 A2d 25 26 (RI 1978)
Emhart further demonstrated that under principles of Conanicut Marine Services Inc v Ins Co
ofN Am 511 A2d 967 (RI 1986) a breach of the duty to defend gives rise to the duty to middot
indemnify Liberty Mutual and INA opposed Emharts motion and seek summary judgment in
their favor on the duties to defend and indemnify OneBeacon and North River moved for
summary judgment on the duty to indemnify This memorandum replies to the insurers
Emharts predecessor Metro-Atlantic Inc used a portion of the Site for chemical
manufacturing Another portion of the Site was used by New England Container Company
(NBC) a barrel recycler unrelated to Emhart Metro-Atlantic operated on the Site from the
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1940s until approximately December 1968 when it was consolidated with Crown Chemical
Corporation to form Crown Metro Inc (Cro~ Metro) the insured under the INA and
OneBeacon policies USM Corporation (USM) the insured under the Liberty Mutual policies
acquired Crown Metro which was later liquidated into USM USM eventually merged into
Emhart the insured under the North River policy Crown Metro USM and Emhart never
conducted any operations at the Site By merger and acquisition Emhart has succeeded to the
rights of each of its predecessors under their respectiv~ policies (see Em Mem at 3-4)
Following a June 1999 request for information the EPA issued a PRP letter in February
2000 and a Unilateral Administrative Order in April2000 A second such Order followed in
March 2001 (see Em Mem at 4-9) Under these Orders Emhart was compelled to undertake
substantial remedial actions or face serious fimmcial consequences The EPA described the
contamination of the Woonasquatucket River and land on which Metro-Atlantic had never
operated but made only general allegations regarding the suspected cause During discovery it
was determined that Metro-Atlantic manufactured hexachlorophene for use in soap during a brief
period in approximately 1964-65 Dioxin a principal contaminant at the Site was a by-product
of this manufacturing process The EPA listed eighteen other chemicals found in high
concentrations on the Site which would likely require remediation The EPA also alleged that
there was a serious fire at the Site in 1972 discovery has disclosed eflier fir(s and explosions
This memorandum addresses new issues raised by the insurers and issues raised in
Emharts motion It reinforces the showing in Emharts prior memorandum that Rhode Island
law applies to the Liberty Mutual and North River polices As Emhart demonstrates it is the
successor to the policies issued to Crown Metro and USM and is consequently entitled to the
benefits ofthese policies Moreover the duties to defend and indemnify were triggered by
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occurrences at the Site during all applicable policy periods Further the pollution exclusions in
the INA Liberty Mutual and North River policies are inapplicable regardless of whether Rhode
Island law or the more restrictive law of Massachusetts Connecticut or New York applies
OneBeacon may not rewrite its policy to add a pollution exclusion In addition the EPAs claim
is for damages under the PRP letter and unilateral orders which require remediation of actual
contamination rather than merely threatened future contamination any rental property
exclusions are inapplicable because inter alia third-party property is contaminated Finally
Emhart shows that INA may not avoid its duty to defend due to Emharts having additional
irtsUers or due to Emharts retainin~ counsel wPen the insurers refused to defend
Regardless of the applicable law Emhart is entitled to summary judgment against INA
and Liberty Mutual The insurers motions raise material issues of fact I I PRELIMINARY ISSUES li
1shyA Rhode Island Law Applies ~ Emhart has shown that in a conflicts determination Rhode Island follows the modern
r-
i
interest weighing analysis rather than the outdated lex loci contractus approach in determining I I
applicable substantive law (see Em Mem at 18-23) Under this analysis the substantive law of
the location of the contaminated site applies to a single-site environmental coverage dispute ~ While Liberty Mutual and North River erroneously look to the old rule neither insurer cites any
decision in which Rhode Island considered but chose not to apply an interest analysis or where t a court following the interest analysis in a situation involving a single contaminated industrial
f
site declined to adopt the substantive law ofthe state in which the site was located ~ 1 The Interest-Weighing Approach Applies in Contract Actions I
I I
Emhart has shown that Rhode Island generally follows an interest-weighing approach i
i
adopted from the Restatement (Second) of Conflict ofLaws (Restatement) (Em Mem at 18shy
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I
I
19) Relying on dicta from Magnum Defense Inc v Harbour Group Ltd 248 F Supp 2d 64 I
69 (DRI 2003) Liberty Mutual erroneously argues that the choice of law determination
depends upon whether the claim is a tort claim or a contract claim (LM Mem at 16-17 20)
When a jurisdiction looks to interest analysis for choice of law it analyzes interests in tort cases
in a different way than in contract cases See Y Najarian v Natl Amusements Inc 768
A2d 1253 1255 (RI 2001) The nature of the case is relevant to which interests are considered
not whether interest analysis is to be utilized Magnum does not suggest that an interest analysis
cannot be used in a contract action
Rhode Island Supreme Court decisions provide a strong basis for concluding that Rhode
Islands use of an interest analysis is not limited to tort cases In Gordon v Clifford Metal Sales
Co 602 A2d 535 (RI 1992) a contract action concerning a secured transaction the trial court
relied upon both a choice-of-law provision in the Uniform Commercial Code and a second body
oflaw Section 6 of the Restatement 602 A2d at 537-39 The Rhode Island Supreme Court
discussed the two approaches in detail approving both Regarding the Restatement it said that
[t]he trial justice correctly concluded upon consideration of the aforementioned factors [in
Section 6] that Rhode Island law has the most appropriate relation to the transaction 602 A2d
at 539 In Gordon Rhode Islands reliance on interest analysis was applied in a contract case
Accordingly interest analysis is not confined to tort cases
Liberty Mutual also errs when it asserts that Gordon held that the Uniform Commercial
Code (UCC) choice-of-law provision was ultimately control~~g as to the rights of the
parties (LM Mem at 16) The Court stated that the UCC was controlling after it had
resolved the choice-of-law issue by determining that Rhode Island(s substantive law set forth in
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its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
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suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
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tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
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2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
TABLE OF CONTENTS
Table ofAuthorities iii
Introduction - ~ 1
I PRELTh1INARY ISSUES 3
A_ Rhode Island Law Applies - 3 ~
1 The Interest-Weighing Approach Applies in Contract Actions 3
I
2 Under The Interest-Weighing Approach Rhode Island Law Applies 9 lo
B Emhart Succeeded To The Rights OfThe Insureds 12 F
L
r-IT OCCURRENCES TRIGGERING EACH POLICY 16 t
Fc IA Background To Occurrence Trigger And Pollution Exclusion 16 I
1 The Relevant State OfEnvironmental Knowledge 16 I
I I
I
2 The Manufacture OfHexachlorophene By Metro-Atlantic 18 I
3 Later Knowledge Regarding Hexachlorophene And Dioxin 18 f 4 Fires And Other Abrupt Releases At The Site 21 ~ 5 Other Contaminants 22
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue ~ middot 23
1 Policies Cover Unintended Injury Caused By Intentional Acts 23
2 Intent Is Determined By A Subjective Test 26
3 There Are Material Questions OfFact Regarding Occurrence 27
C The Insurers Are NotEntitled To Summary Judgment On Trigger 30 F
1 Fact Questions Exist As To Each Element OfThe == Discoverability Trigger ~ 30
_ shy
f---~ccc I
a There Was Property Damage 3 0 I
b _The Dioxin Was Capable OfDetection 31
c There Was Reason To Test 32
i
I
E-002002006002
2 Rhode Island Would Adopt The Continuous Trigger 34
3 The Liberty Mutual Policies Were Triggered 34
ill THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE 35
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty Mutual Of Its Duty To Defend bull 35
B Fact Questions Preclude Summary Judgment Onindemnification 37
C The INA Exclusion OfWaste Products Is Iriapplicable 38
1 INA Is Required To Defend 39
2 Fact Questions Preclude Summary Judgment On Indemnification 40 [
D On~ Beacon May Not Retroactively Insert A P~llutionExclusion Into Its Policy 41 ~
I N EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS I
THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY I
DAMAGE AND OWNED PROPERTY 43 I
A The PRP Letter And Unilateral Orders Are The Functional Equivalent I
OfSuits For Damages On Account OfProperty Damage 43 E ~
B Rental Property Exclusions Do Not Bar Coverage 47
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO ])EFEND 48
A INA Is Required To Pay Defense Costs ~ 48
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual 50
1 Issues Regarding Allocation Should Not Be Considered Now 51
2 Liability Among The Insurers Is Joint And Several 52
C Because OfTheir Breach OfThe Duty To Defend Both Insurers Must IndemnifY Emhart 53
Conclusion 55
ii
E-002002006003
TABLE OF AUTHORITIES
A C Beals Co v Rhode Island Hosp 292 A2d 865 (RI 1971) 5
A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298 middot (D Mass 1990) 9
AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 (Iowa 1991) 45
Aerojet-General Corp v San Mateo County Superior Court 257 Cal Rptr 621 (Cal Ct App 1989) 45
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (BD Mich 1995) 9-10
Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421 (BD Mich 1998) 25
Aetna Cas amp Sur Co v Dow Chern Co 44 F Supp 2d 865 (BD Mich 1999) 28
Aetna Cas amp Sur Co v Kelly 889 F Supp 535 (RI 1995) 16
Afcan v Mut Fire Marine ampInland Ins Co 595 P2d 638 (Alaska 1979) 54
Allstate Ins Co v Quinn Constr Co 713 F Supp 35 (D Mass 1989) vacated as a result ofsettlement 784 F Supp 927 (D Mass~ 1990) 47-48
Allstate Ins Co v Russo 641 A2d 1304 (RI 1994) 39
American Home Assurance Co v Libbey-Owens-Ford Co 786 F2d 22 (1st Cir 1986) 33
Associates in Anesthesia Inc v Mut Benefit Life Ins Co 504 A2d 477 (RI 1986) 41-42
Baker v Hanover Ins Co 568 A2d 1023 (RI 1990) 7
Bartholomew v Ins Co ofN Am 502 F Supp 246 (DRI 1980) 7-8 ~ r~~
IBoeing Co v Aetna Cas amp Sur Co 784P2d 507 (Wash 1990) (en bane) 45 I
I i
Borg-Warner Corp v Ins Co ofN Am 174 AD2d 24 (App Civ 1993) 25
Brown v Church ofthe Holy Name ofJesus 252 A2d 176 (RI 1969) 5 7
iii
E-002002006004
Brunswick Corp v St Paul Fire amp Marine Ins Co 509 F Supp 750 (BD Pa 1981) 15
Buell Indus Inc v Greater NY Mut Ins Co 791 A2d 489 (Conn 2002) 38
Canron Inc v Fed Ins Co 918 P2d 937 (Wash Ct App 1996) 9
Chesapeake Util Corp v Am Home Assurance Co 704 F Supp 551 (D Del 1989) 9 11
Chicago Bridge amp Iron Co v Certain Underwriters at Lloyds London 797 NE2d 434 (Mass Ct App 2003) 52-53
Cincinnati Companies v W Am Ins Co 701 NE2d 499 (Til 1998) 49
Comunale v Traders amp General Ins Co 28 P2d 198 (Cal 1958) 54
ConanicutMarine Services Inc v Ins Co ofN Am 511 A2d 967 (RI 1986) 1 53-55
Cooley v John M Anderson Co 443 A2d 435 (RI 1982) 52
CPC Intl Inc v Northbrook Excess amp Surplus Ins Co 668 F2d 647 (RI 1995) 33 46
Crellin Technologies Inc v Equipmentlease Corp 18 F3d 1 (1st Cir 1994) 6
Curran Composites Inc v Liberty Mut Ins Co 874 F Supp 261 (Wb Mo 1994) 9 11
Doe v Liberty Mut Ins Co 667 NE2d 1149 (Mass 1997) 23
Eagle-Picher Indus Inc v Liberty Mut Ins Co 682 F2d 12 (1st Cir 1982) 33
Eagle-Picher Indus bull Inc v Liberty Mut Ins Co 829 F2d 227 (1st Cir 1987) 8 12
Edo Corp v Newark Ins Co 1997 WL 76575 (D Conn 1997) 10
Ellis v RI Pub Transit Authority 586 A2d 1055 RI 1991) 52
Flori v Allstate Insmiddot Co 388 A2d 25 (RI 1978) 1
Friendly Home Inc v Shareholders and Creditors ofRoyal Homestead middot Land Co 477 A2d 934 (RI 1984) 14
Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) 8
iv
E-002002006005
r
Gilbert Spruance v Pennsylvania Mfr Assn Ins Co 629 A2d 885 (NJ 1993) 9
Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 (Ohio 2002) 53
Gordonv Clifford Metal Sales Co 602 A2d 535 (RI 1992) 4-5
Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) 11
Great Lakes Container Corp v Natl Union Fire Ins Co 727 F 2d 30 (1st Cir 1984) 25
Grenga v National Surety Corp 317 A2d 433 (RI 1974) ~ 23
Gulf Chern amp Metallurgical Corp v Assoc Metals amp Minerals Corp 1 F3d 365 (5th Cir 1993) 51
Hartford Accident amp Indem Co v Dana Corp 690 NE2d 285 (Ind Ct App middot1998) 45
Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) ~ 7-8 11
Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d 576 (Mass 1990) 43-45
Herbert A Sullivan Inc v Utica Mut Ins Co 778 NE2d 522 (Mass 2003) 37
Hopkins v Equitable Life Assurance Society 270 A2d 915 (RI 1970) 41
Imperial Enterprises Inc V Firemans Fund Ins Co 535 F2d 287 (5th Cir 1976) 15
Insurance Co ofNorth America v Kayser-Roth Corp 1999 WL 813661 (RI Super Ct July 29 1999) 7-8
Insurance Co ofNorth America v Kayser-Roth Cor_p 770 A2d 403 (RI 2001) 31 44
James Graham Brown Foundation Inc V St Paul Fire amp Marine Ins Co 814 SW2d 273 (Ky 1991) 26
JH France Refractories Co v Allstate Ins Co 626 A2d 502 (Penn 1993) 52
Joy Technologies Inc v Liberty Mut Ins Co 421 SE2d 493 (W Va 1992) 9
Keene Cor_p v Ins Co ofN Am 667 F2d 1034 (DC Cir 1981) 52
~ ~~
f I
v
E-002002006006
KnollPharm Co v Automobile Ins Co ofHartford 167 F Supp 2d 1004 (ND Dl-2001) _ 15
LE Myers Co v Harbor Ins Co 394 NE2d 1200 (Til 1979) 43
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass May 17 2002) 10
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass Dec 5 2003) 24-28 46
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass Jati 27 2004) 24 27 r
LumbermensMut Cas Co v Belleville Indus 938 F2d 1423 (1st Cir 1991) 40-41 t
Maiorana v MacDonald 596 F2d 1072 (1st Cir 1979) 42
Magnum Defense~ Inc v Harbour Group Ltd 248 F Supp 2d 64 (DRI 2003) 4 f
I
Mapco Alaska Petroleum v Cent Natl Ins Co ofOmah~ 795 F Supp 941 (D Alaska 1991) 9
Marshall Contractors Inc v Peerless Ins Co 827 F Supp 91 (DRI1993) 7 i fMelville v Am Home Assurance Co 584 F2d 1306 (3d Cir 1978) 8
IMichaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI 1994) 7 53-54
Millipore Corp v Travelers Indemnity Co 115 F3d 21 (1st Cir 1997) 10
Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co ~ 230 A2d 21 (Conn_l967) _ 54
Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 (D Nev 1996) 9 ~
Montaup Electric Co v Ohio Brass Corp 561 F Supp 740 (DRI 1983) 7 r
~
~-shy
1
Mortonlntl v Aetna Cas amp Sur Co 666NE2d 1163 (Ohio Ct App 1995) 9
Mottola v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) 29
Najarian v Natl Amusements Inc 768 A2d 1253 (RI 2001) 4-5 I
NatlAm Ins Co v Jamison Agency Inc 501 F2d 1125 (8thCir 1974) 14-15
vi
E-002002006007
Nationwide Mut Fire Ins Co v Beville 825 So2d 999 (Fla App 2002) ~ 49
Nashua Corp v First State Inc Co 648 NE2d 1272 (1995) 3637
Nortek Inc v Liberty Mut Ins Co 858 F Supp 1231 (DRI 1994)7 48 51
N States Power Co v Fidelity amp Cas Co ofNY 504 NW2d 240 (Minn Ct App 1993) 45
Northville Indus Corp v Natl Union Fire Ins Co 679 NE2d 1044 (NY 1997) 38
Olin Corp v Ins Co ofN Am 221 F3d 307 (2d Cir 2000) 25
Owens-Illinois Inc v United Ins Co 650 A2d 974 (NJ 1994) 52-53
Paxton amp Vierling Steel Co v Great Am Ins Co 497 F Supp 573 (D Neb 1980) middot middot 15
Peerless Ins Co v Viegas 667 A2d 785 (RI 1995) 23 41
Preferred Mut Inc Co v Gamache 686 NE2d 989 (Mass 1997) 24
Pressman v Aetna Cas amp Sur Co 574 A2d 757 (RI 1990) 34 47
Providence Journal Co v Travelers Indem Co 938 F Supp 1066 (DRI 1996) ~ 27
Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 F Supp 1278 (D Utah 1994) 28
Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 (Mass 1984) 24
Reichhold Chern Inc v Hartford Accident amp Indem Co 703 A2d 1132 (Conn 1997) 10
Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 (RI Super 1998) 52
RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994) 52
Rogan v Auto-Owners Ins Co 832 P2d 212 (Ariz Ct App 1992) 54
St Paul Fire amp Marine Inc Co v McCormick amp Baxter CreosotingCo 923 P2d 1200 (Mich 1995) - 26
St Paul Fire amp Marine Inc Co v Thomas 273 So2d 117 (Fla Ct App 1973) 54
vii
E-002002006008
St Paul Fire amp Marine Ins Co v Warwick Dyeing Corp 26 F3d 1195 (1st Cir 1994) 27
Samson y Transamerica Ins Co 636 P2d 32 (Cal 1981) 54
Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir 1988) 10
Sauerv Homeindem Co 841 A2d 176 (Alaska 1991) 54
Security Ins Co ofHartford v Lumbermens Mut Cas Co 826 A2d 107 (Conn 2003) 52
fShapiro v Associated lntl ins 899 F2d 1116 11th Cir 1990) 8 I
Shell Oil Co v Winterthur Swiss Inc Co 12 Cal App 4th 715 (1993) 25-26
Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 (Md 1997) ~ 49 ~
Smartfoods Inc V Northbrook Property amp Cas Co 618 NE2d 1365 ~ [
(Mass Ct App 1993) 24
Smith v Hughes Aircraft Co 22 F3d 1432 1439-40 9th Cir 1993) 37
State exrel Davidson v Hoke 532 SE2d 50 (WVa 2000) 27
State ofVermont v CNAins Companies 779 A2d 662 (Vt 2001) 24 26
State Mut Life Assurance Co ofAm v Lumbermens Mut Cas Co 874 F Supp 451 (D Mass 1995) 28
SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631 (DRI 1987) 8
Tecumseh Prod Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) 25
Texas Property amp Cas Ins Guar Assoc v Southwest Aggregates Inc 982 SW2d 600 (Tex Ct App 1999) 51
Textron Inc v Aetna Cas amp Sur Co 723 A2d 1136 (RI 1994) 31-34
Textron Inc v Aetna Cas amp Sur Co 754 A2d 742 (RI 2000) 27 30-33 35-38
TPLC Inc v United Natl Ins Co 44 F3d 1484 (lOth Cir 1995) 52
Travelers Ins Co v Waltham Indus Lab Corp 883 F2d 1092 middot (1st Cir 1989) 26
viii
E-002002006009
Truck Ins Exchange v Vanport Homes Inc 58 P3d 276 (Wash 2002) 49
Trustees ofTufts Univ v Commerical Union Ins Co 616 NE2d 68 (Mass 1993) 34-35
Union Sav Bankv DeMarco 254 A2d 81 (RI 1969) 6-7
United Brass Works Inc v ArnmiddotGuar amp Liab Ins Co 819 F Supp 465 (WD Pa 1992) middot 11
Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass Ct App 1999) 25
Village ofMorrisville Water amp Light Dept v US Fid amp Guar 775 F Supp 718 (D Vt 1991) 26
Woodward v Stewart 243 A2d 917 (RI 1968) 5 7
Zarrella y MinnesotaMut Life Ins Co 824 A2d 1249 (RI 2003) ~ 6
Other Authority
Websters Third New Intl Dictionazy (unabridged) 2580 (1993) 39
L_
i r
ix
E-00200200601 0
INTRODUCTION
Emhart Industries Inc (Emhart) seeks insurance coverage from Liberty Mutual
Insurance Company (Liberty Mutual) Insurance Company ofNorth America (INA)
OneBeacon America Insurance Company (OneBeacon) and North River Insurance Company
(North River) for claims by the Environmental Protection Agency (EPA) for remediation of
the Centredale Manor Superfund Site (Site) in North Providence Rhode Island The INA
policy was in effect from late 1968 into 1970 and the OneBeacon policy was excess to it during
most of that period The Liberty Mutual policies were in effect from 1971 through 1979 North
River wrote an excess policy for the 1984 calendar year The policies provide occurrence-based
property coverage The INA and Liberty Mutual policies also include a defense obligation (see
Emharts opening memorandum (Em Mem) at 12 13-14)
Emhart moved for summary judgment against Liberty Mutual and INA on the ground
that they were in breach of the duty to defend The charging documents including a PRP letter
and two unilateral orders demonstrate the reasonable possibility of coverage under the policies
the duty to defend thus exists See Flori v Allstate Ins Co 388 A2d 25 26 (RI 1978)
Emhart further demonstrated that under principles of Conanicut Marine Services Inc v Ins Co
ofN Am 511 A2d 967 (RI 1986) a breach of the duty to defend gives rise to the duty to middot
indemnify Liberty Mutual and INA opposed Emharts motion and seek summary judgment in
their favor on the duties to defend and indemnify OneBeacon and North River moved for
summary judgment on the duty to indemnify This memorandum replies to the insurers
Emharts predecessor Metro-Atlantic Inc used a portion of the Site for chemical
manufacturing Another portion of the Site was used by New England Container Company
(NBC) a barrel recycler unrelated to Emhart Metro-Atlantic operated on the Site from the
E-002002006011
1940s until approximately December 1968 when it was consolidated with Crown Chemical
Corporation to form Crown Metro Inc (Cro~ Metro) the insured under the INA and
OneBeacon policies USM Corporation (USM) the insured under the Liberty Mutual policies
acquired Crown Metro which was later liquidated into USM USM eventually merged into
Emhart the insured under the North River policy Crown Metro USM and Emhart never
conducted any operations at the Site By merger and acquisition Emhart has succeeded to the
rights of each of its predecessors under their respectiv~ policies (see Em Mem at 3-4)
Following a June 1999 request for information the EPA issued a PRP letter in February
2000 and a Unilateral Administrative Order in April2000 A second such Order followed in
March 2001 (see Em Mem at 4-9) Under these Orders Emhart was compelled to undertake
substantial remedial actions or face serious fimmcial consequences The EPA described the
contamination of the Woonasquatucket River and land on which Metro-Atlantic had never
operated but made only general allegations regarding the suspected cause During discovery it
was determined that Metro-Atlantic manufactured hexachlorophene for use in soap during a brief
period in approximately 1964-65 Dioxin a principal contaminant at the Site was a by-product
of this manufacturing process The EPA listed eighteen other chemicals found in high
concentrations on the Site which would likely require remediation The EPA also alleged that
there was a serious fire at the Site in 1972 discovery has disclosed eflier fir(s and explosions
This memorandum addresses new issues raised by the insurers and issues raised in
Emharts motion It reinforces the showing in Emharts prior memorandum that Rhode Island
law applies to the Liberty Mutual and North River polices As Emhart demonstrates it is the
successor to the policies issued to Crown Metro and USM and is consequently entitled to the
benefits ofthese policies Moreover the duties to defend and indemnify were triggered by
2
E-002002006012
occurrences at the Site during all applicable policy periods Further the pollution exclusions in
the INA Liberty Mutual and North River policies are inapplicable regardless of whether Rhode
Island law or the more restrictive law of Massachusetts Connecticut or New York applies
OneBeacon may not rewrite its policy to add a pollution exclusion In addition the EPAs claim
is for damages under the PRP letter and unilateral orders which require remediation of actual
contamination rather than merely threatened future contamination any rental property
exclusions are inapplicable because inter alia third-party property is contaminated Finally
Emhart shows that INA may not avoid its duty to defend due to Emharts having additional
irtsUers or due to Emharts retainin~ counsel wPen the insurers refused to defend
Regardless of the applicable law Emhart is entitled to summary judgment against INA
and Liberty Mutual The insurers motions raise material issues of fact I I PRELIMINARY ISSUES li
1shyA Rhode Island Law Applies ~ Emhart has shown that in a conflicts determination Rhode Island follows the modern
r-
i
interest weighing analysis rather than the outdated lex loci contractus approach in determining I I
applicable substantive law (see Em Mem at 18-23) Under this analysis the substantive law of
the location of the contaminated site applies to a single-site environmental coverage dispute ~ While Liberty Mutual and North River erroneously look to the old rule neither insurer cites any
decision in which Rhode Island considered but chose not to apply an interest analysis or where t a court following the interest analysis in a situation involving a single contaminated industrial
f
site declined to adopt the substantive law ofthe state in which the site was located ~ 1 The Interest-Weighing Approach Applies in Contract Actions I
I I
Emhart has shown that Rhode Island generally follows an interest-weighing approach i
i
adopted from the Restatement (Second) of Conflict ofLaws (Restatement) (Em Mem at 18shy
3
E-002002006013
I
I
19) Relying on dicta from Magnum Defense Inc v Harbour Group Ltd 248 F Supp 2d 64 I
69 (DRI 2003) Liberty Mutual erroneously argues that the choice of law determination
depends upon whether the claim is a tort claim or a contract claim (LM Mem at 16-17 20)
When a jurisdiction looks to interest analysis for choice of law it analyzes interests in tort cases
in a different way than in contract cases See Y Najarian v Natl Amusements Inc 768
A2d 1253 1255 (RI 2001) The nature of the case is relevant to which interests are considered
not whether interest analysis is to be utilized Magnum does not suggest that an interest analysis
cannot be used in a contract action
Rhode Island Supreme Court decisions provide a strong basis for concluding that Rhode
Islands use of an interest analysis is not limited to tort cases In Gordon v Clifford Metal Sales
Co 602 A2d 535 (RI 1992) a contract action concerning a secured transaction the trial court
relied upon both a choice-of-law provision in the Uniform Commercial Code and a second body
oflaw Section 6 of the Restatement 602 A2d at 537-39 The Rhode Island Supreme Court
discussed the two approaches in detail approving both Regarding the Restatement it said that
[t]he trial justice correctly concluded upon consideration of the aforementioned factors [in
Section 6] that Rhode Island law has the most appropriate relation to the transaction 602 A2d
at 539 In Gordon Rhode Islands reliance on interest analysis was applied in a contract case
Accordingly interest analysis is not confined to tort cases
Liberty Mutual also errs when it asserts that Gordon held that the Uniform Commercial
Code (UCC) choice-of-law provision was ultimately control~~g as to the rights of the
parties (LM Mem at 16) The Court stated that the UCC was controlling after it had
resolved the choice-of-law issue by determining that Rhode Island(s substantive law set forth in
4
E-002002006014
its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
5
E-002002006015
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
2 Rhode Island Would Adopt The Continuous Trigger 34
3 The Liberty Mutual Policies Were Triggered 34
ill THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE 35
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty Mutual Of Its Duty To Defend bull 35
B Fact Questions Preclude Summary Judgment Onindemnification 37
C The INA Exclusion OfWaste Products Is Iriapplicable 38
1 INA Is Required To Defend 39
2 Fact Questions Preclude Summary Judgment On Indemnification 40 [
D On~ Beacon May Not Retroactively Insert A P~llutionExclusion Into Its Policy 41 ~
I N EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS I
THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY I
DAMAGE AND OWNED PROPERTY 43 I
A The PRP Letter And Unilateral Orders Are The Functional Equivalent I
OfSuits For Damages On Account OfProperty Damage 43 E ~
B Rental Property Exclusions Do Not Bar Coverage 47
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO ])EFEND 48
A INA Is Required To Pay Defense Costs ~ 48
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual 50
1 Issues Regarding Allocation Should Not Be Considered Now 51
2 Liability Among The Insurers Is Joint And Several 52
C Because OfTheir Breach OfThe Duty To Defend Both Insurers Must IndemnifY Emhart 53
Conclusion 55
ii
E-002002006003
TABLE OF AUTHORITIES
A C Beals Co v Rhode Island Hosp 292 A2d 865 (RI 1971) 5
A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298 middot (D Mass 1990) 9
AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 (Iowa 1991) 45
Aerojet-General Corp v San Mateo County Superior Court 257 Cal Rptr 621 (Cal Ct App 1989) 45
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (BD Mich 1995) 9-10
Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421 (BD Mich 1998) 25
Aetna Cas amp Sur Co v Dow Chern Co 44 F Supp 2d 865 (BD Mich 1999) 28
Aetna Cas amp Sur Co v Kelly 889 F Supp 535 (RI 1995) 16
Afcan v Mut Fire Marine ampInland Ins Co 595 P2d 638 (Alaska 1979) 54
Allstate Ins Co v Quinn Constr Co 713 F Supp 35 (D Mass 1989) vacated as a result ofsettlement 784 F Supp 927 (D Mass~ 1990) 47-48
Allstate Ins Co v Russo 641 A2d 1304 (RI 1994) 39
American Home Assurance Co v Libbey-Owens-Ford Co 786 F2d 22 (1st Cir 1986) 33
Associates in Anesthesia Inc v Mut Benefit Life Ins Co 504 A2d 477 (RI 1986) 41-42
Baker v Hanover Ins Co 568 A2d 1023 (RI 1990) 7
Bartholomew v Ins Co ofN Am 502 F Supp 246 (DRI 1980) 7-8 ~ r~~
IBoeing Co v Aetna Cas amp Sur Co 784P2d 507 (Wash 1990) (en bane) 45 I
I i
Borg-Warner Corp v Ins Co ofN Am 174 AD2d 24 (App Civ 1993) 25
Brown v Church ofthe Holy Name ofJesus 252 A2d 176 (RI 1969) 5 7
iii
E-002002006004
Brunswick Corp v St Paul Fire amp Marine Ins Co 509 F Supp 750 (BD Pa 1981) 15
Buell Indus Inc v Greater NY Mut Ins Co 791 A2d 489 (Conn 2002) 38
Canron Inc v Fed Ins Co 918 P2d 937 (Wash Ct App 1996) 9
Chesapeake Util Corp v Am Home Assurance Co 704 F Supp 551 (D Del 1989) 9 11
Chicago Bridge amp Iron Co v Certain Underwriters at Lloyds London 797 NE2d 434 (Mass Ct App 2003) 52-53
Cincinnati Companies v W Am Ins Co 701 NE2d 499 (Til 1998) 49
Comunale v Traders amp General Ins Co 28 P2d 198 (Cal 1958) 54
ConanicutMarine Services Inc v Ins Co ofN Am 511 A2d 967 (RI 1986) 1 53-55
Cooley v John M Anderson Co 443 A2d 435 (RI 1982) 52
CPC Intl Inc v Northbrook Excess amp Surplus Ins Co 668 F2d 647 (RI 1995) 33 46
Crellin Technologies Inc v Equipmentlease Corp 18 F3d 1 (1st Cir 1994) 6
Curran Composites Inc v Liberty Mut Ins Co 874 F Supp 261 (Wb Mo 1994) 9 11
Doe v Liberty Mut Ins Co 667 NE2d 1149 (Mass 1997) 23
Eagle-Picher Indus Inc v Liberty Mut Ins Co 682 F2d 12 (1st Cir 1982) 33
Eagle-Picher Indus bull Inc v Liberty Mut Ins Co 829 F2d 227 (1st Cir 1987) 8 12
Edo Corp v Newark Ins Co 1997 WL 76575 (D Conn 1997) 10
Ellis v RI Pub Transit Authority 586 A2d 1055 RI 1991) 52
Flori v Allstate Insmiddot Co 388 A2d 25 (RI 1978) 1
Friendly Home Inc v Shareholders and Creditors ofRoyal Homestead middot Land Co 477 A2d 934 (RI 1984) 14
Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) 8
iv
E-002002006005
r
Gilbert Spruance v Pennsylvania Mfr Assn Ins Co 629 A2d 885 (NJ 1993) 9
Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 (Ohio 2002) 53
Gordonv Clifford Metal Sales Co 602 A2d 535 (RI 1992) 4-5
Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) 11
Great Lakes Container Corp v Natl Union Fire Ins Co 727 F 2d 30 (1st Cir 1984) 25
Grenga v National Surety Corp 317 A2d 433 (RI 1974) ~ 23
Gulf Chern amp Metallurgical Corp v Assoc Metals amp Minerals Corp 1 F3d 365 (5th Cir 1993) 51
Hartford Accident amp Indem Co v Dana Corp 690 NE2d 285 (Ind Ct App middot1998) 45
Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) ~ 7-8 11
Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d 576 (Mass 1990) 43-45
Herbert A Sullivan Inc v Utica Mut Ins Co 778 NE2d 522 (Mass 2003) 37
Hopkins v Equitable Life Assurance Society 270 A2d 915 (RI 1970) 41
Imperial Enterprises Inc V Firemans Fund Ins Co 535 F2d 287 (5th Cir 1976) 15
Insurance Co ofNorth America v Kayser-Roth Corp 1999 WL 813661 (RI Super Ct July 29 1999) 7-8
Insurance Co ofNorth America v Kayser-Roth Cor_p 770 A2d 403 (RI 2001) 31 44
James Graham Brown Foundation Inc V St Paul Fire amp Marine Ins Co 814 SW2d 273 (Ky 1991) 26
JH France Refractories Co v Allstate Ins Co 626 A2d 502 (Penn 1993) 52
Joy Technologies Inc v Liberty Mut Ins Co 421 SE2d 493 (W Va 1992) 9
Keene Cor_p v Ins Co ofN Am 667 F2d 1034 (DC Cir 1981) 52
~ ~~
f I
v
E-002002006006
KnollPharm Co v Automobile Ins Co ofHartford 167 F Supp 2d 1004 (ND Dl-2001) _ 15
LE Myers Co v Harbor Ins Co 394 NE2d 1200 (Til 1979) 43
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass May 17 2002) 10
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass Dec 5 2003) 24-28 46
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass Jati 27 2004) 24 27 r
LumbermensMut Cas Co v Belleville Indus 938 F2d 1423 (1st Cir 1991) 40-41 t
Maiorana v MacDonald 596 F2d 1072 (1st Cir 1979) 42
Magnum Defense~ Inc v Harbour Group Ltd 248 F Supp 2d 64 (DRI 2003) 4 f
I
Mapco Alaska Petroleum v Cent Natl Ins Co ofOmah~ 795 F Supp 941 (D Alaska 1991) 9
Marshall Contractors Inc v Peerless Ins Co 827 F Supp 91 (DRI1993) 7 i fMelville v Am Home Assurance Co 584 F2d 1306 (3d Cir 1978) 8
IMichaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI 1994) 7 53-54
Millipore Corp v Travelers Indemnity Co 115 F3d 21 (1st Cir 1997) 10
Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co ~ 230 A2d 21 (Conn_l967) _ 54
Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 (D Nev 1996) 9 ~
Montaup Electric Co v Ohio Brass Corp 561 F Supp 740 (DRI 1983) 7 r
~
~-shy
1
Mortonlntl v Aetna Cas amp Sur Co 666NE2d 1163 (Ohio Ct App 1995) 9
Mottola v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) 29
Najarian v Natl Amusements Inc 768 A2d 1253 (RI 2001) 4-5 I
NatlAm Ins Co v Jamison Agency Inc 501 F2d 1125 (8thCir 1974) 14-15
vi
E-002002006007
Nationwide Mut Fire Ins Co v Beville 825 So2d 999 (Fla App 2002) ~ 49
Nashua Corp v First State Inc Co 648 NE2d 1272 (1995) 3637
Nortek Inc v Liberty Mut Ins Co 858 F Supp 1231 (DRI 1994)7 48 51
N States Power Co v Fidelity amp Cas Co ofNY 504 NW2d 240 (Minn Ct App 1993) 45
Northville Indus Corp v Natl Union Fire Ins Co 679 NE2d 1044 (NY 1997) 38
Olin Corp v Ins Co ofN Am 221 F3d 307 (2d Cir 2000) 25
Owens-Illinois Inc v United Ins Co 650 A2d 974 (NJ 1994) 52-53
Paxton amp Vierling Steel Co v Great Am Ins Co 497 F Supp 573 (D Neb 1980) middot middot 15
Peerless Ins Co v Viegas 667 A2d 785 (RI 1995) 23 41
Preferred Mut Inc Co v Gamache 686 NE2d 989 (Mass 1997) 24
Pressman v Aetna Cas amp Sur Co 574 A2d 757 (RI 1990) 34 47
Providence Journal Co v Travelers Indem Co 938 F Supp 1066 (DRI 1996) ~ 27
Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 F Supp 1278 (D Utah 1994) 28
Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 (Mass 1984) 24
Reichhold Chern Inc v Hartford Accident amp Indem Co 703 A2d 1132 (Conn 1997) 10
Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 (RI Super 1998) 52
RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994) 52
Rogan v Auto-Owners Ins Co 832 P2d 212 (Ariz Ct App 1992) 54
St Paul Fire amp Marine Inc Co v McCormick amp Baxter CreosotingCo 923 P2d 1200 (Mich 1995) - 26
St Paul Fire amp Marine Inc Co v Thomas 273 So2d 117 (Fla Ct App 1973) 54
vii
E-002002006008
St Paul Fire amp Marine Ins Co v Warwick Dyeing Corp 26 F3d 1195 (1st Cir 1994) 27
Samson y Transamerica Ins Co 636 P2d 32 (Cal 1981) 54
Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir 1988) 10
Sauerv Homeindem Co 841 A2d 176 (Alaska 1991) 54
Security Ins Co ofHartford v Lumbermens Mut Cas Co 826 A2d 107 (Conn 2003) 52
fShapiro v Associated lntl ins 899 F2d 1116 11th Cir 1990) 8 I
Shell Oil Co v Winterthur Swiss Inc Co 12 Cal App 4th 715 (1993) 25-26
Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 (Md 1997) ~ 49 ~
Smartfoods Inc V Northbrook Property amp Cas Co 618 NE2d 1365 ~ [
(Mass Ct App 1993) 24
Smith v Hughes Aircraft Co 22 F3d 1432 1439-40 9th Cir 1993) 37
State exrel Davidson v Hoke 532 SE2d 50 (WVa 2000) 27
State ofVermont v CNAins Companies 779 A2d 662 (Vt 2001) 24 26
State Mut Life Assurance Co ofAm v Lumbermens Mut Cas Co 874 F Supp 451 (D Mass 1995) 28
SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631 (DRI 1987) 8
Tecumseh Prod Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) 25
Texas Property amp Cas Ins Guar Assoc v Southwest Aggregates Inc 982 SW2d 600 (Tex Ct App 1999) 51
Textron Inc v Aetna Cas amp Sur Co 723 A2d 1136 (RI 1994) 31-34
Textron Inc v Aetna Cas amp Sur Co 754 A2d 742 (RI 2000) 27 30-33 35-38
TPLC Inc v United Natl Ins Co 44 F3d 1484 (lOth Cir 1995) 52
Travelers Ins Co v Waltham Indus Lab Corp 883 F2d 1092 middot (1st Cir 1989) 26
viii
E-002002006009
Truck Ins Exchange v Vanport Homes Inc 58 P3d 276 (Wash 2002) 49
Trustees ofTufts Univ v Commerical Union Ins Co 616 NE2d 68 (Mass 1993) 34-35
Union Sav Bankv DeMarco 254 A2d 81 (RI 1969) 6-7
United Brass Works Inc v ArnmiddotGuar amp Liab Ins Co 819 F Supp 465 (WD Pa 1992) middot 11
Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass Ct App 1999) 25
Village ofMorrisville Water amp Light Dept v US Fid amp Guar 775 F Supp 718 (D Vt 1991) 26
Woodward v Stewart 243 A2d 917 (RI 1968) 5 7
Zarrella y MinnesotaMut Life Ins Co 824 A2d 1249 (RI 2003) ~ 6
Other Authority
Websters Third New Intl Dictionazy (unabridged) 2580 (1993) 39
L_
i r
ix
E-00200200601 0
INTRODUCTION
Emhart Industries Inc (Emhart) seeks insurance coverage from Liberty Mutual
Insurance Company (Liberty Mutual) Insurance Company ofNorth America (INA)
OneBeacon America Insurance Company (OneBeacon) and North River Insurance Company
(North River) for claims by the Environmental Protection Agency (EPA) for remediation of
the Centredale Manor Superfund Site (Site) in North Providence Rhode Island The INA
policy was in effect from late 1968 into 1970 and the OneBeacon policy was excess to it during
most of that period The Liberty Mutual policies were in effect from 1971 through 1979 North
River wrote an excess policy for the 1984 calendar year The policies provide occurrence-based
property coverage The INA and Liberty Mutual policies also include a defense obligation (see
Emharts opening memorandum (Em Mem) at 12 13-14)
Emhart moved for summary judgment against Liberty Mutual and INA on the ground
that they were in breach of the duty to defend The charging documents including a PRP letter
and two unilateral orders demonstrate the reasonable possibility of coverage under the policies
the duty to defend thus exists See Flori v Allstate Ins Co 388 A2d 25 26 (RI 1978)
Emhart further demonstrated that under principles of Conanicut Marine Services Inc v Ins Co
ofN Am 511 A2d 967 (RI 1986) a breach of the duty to defend gives rise to the duty to middot
indemnify Liberty Mutual and INA opposed Emharts motion and seek summary judgment in
their favor on the duties to defend and indemnify OneBeacon and North River moved for
summary judgment on the duty to indemnify This memorandum replies to the insurers
Emharts predecessor Metro-Atlantic Inc used a portion of the Site for chemical
manufacturing Another portion of the Site was used by New England Container Company
(NBC) a barrel recycler unrelated to Emhart Metro-Atlantic operated on the Site from the
E-002002006011
1940s until approximately December 1968 when it was consolidated with Crown Chemical
Corporation to form Crown Metro Inc (Cro~ Metro) the insured under the INA and
OneBeacon policies USM Corporation (USM) the insured under the Liberty Mutual policies
acquired Crown Metro which was later liquidated into USM USM eventually merged into
Emhart the insured under the North River policy Crown Metro USM and Emhart never
conducted any operations at the Site By merger and acquisition Emhart has succeeded to the
rights of each of its predecessors under their respectiv~ policies (see Em Mem at 3-4)
Following a June 1999 request for information the EPA issued a PRP letter in February
2000 and a Unilateral Administrative Order in April2000 A second such Order followed in
March 2001 (see Em Mem at 4-9) Under these Orders Emhart was compelled to undertake
substantial remedial actions or face serious fimmcial consequences The EPA described the
contamination of the Woonasquatucket River and land on which Metro-Atlantic had never
operated but made only general allegations regarding the suspected cause During discovery it
was determined that Metro-Atlantic manufactured hexachlorophene for use in soap during a brief
period in approximately 1964-65 Dioxin a principal contaminant at the Site was a by-product
of this manufacturing process The EPA listed eighteen other chemicals found in high
concentrations on the Site which would likely require remediation The EPA also alleged that
there was a serious fire at the Site in 1972 discovery has disclosed eflier fir(s and explosions
This memorandum addresses new issues raised by the insurers and issues raised in
Emharts motion It reinforces the showing in Emharts prior memorandum that Rhode Island
law applies to the Liberty Mutual and North River polices As Emhart demonstrates it is the
successor to the policies issued to Crown Metro and USM and is consequently entitled to the
benefits ofthese policies Moreover the duties to defend and indemnify were triggered by
2
E-002002006012
occurrences at the Site during all applicable policy periods Further the pollution exclusions in
the INA Liberty Mutual and North River policies are inapplicable regardless of whether Rhode
Island law or the more restrictive law of Massachusetts Connecticut or New York applies
OneBeacon may not rewrite its policy to add a pollution exclusion In addition the EPAs claim
is for damages under the PRP letter and unilateral orders which require remediation of actual
contamination rather than merely threatened future contamination any rental property
exclusions are inapplicable because inter alia third-party property is contaminated Finally
Emhart shows that INA may not avoid its duty to defend due to Emharts having additional
irtsUers or due to Emharts retainin~ counsel wPen the insurers refused to defend
Regardless of the applicable law Emhart is entitled to summary judgment against INA
and Liberty Mutual The insurers motions raise material issues of fact I I PRELIMINARY ISSUES li
1shyA Rhode Island Law Applies ~ Emhart has shown that in a conflicts determination Rhode Island follows the modern
r-
i
interest weighing analysis rather than the outdated lex loci contractus approach in determining I I
applicable substantive law (see Em Mem at 18-23) Under this analysis the substantive law of
the location of the contaminated site applies to a single-site environmental coverage dispute ~ While Liberty Mutual and North River erroneously look to the old rule neither insurer cites any
decision in which Rhode Island considered but chose not to apply an interest analysis or where t a court following the interest analysis in a situation involving a single contaminated industrial
f
site declined to adopt the substantive law ofthe state in which the site was located ~ 1 The Interest-Weighing Approach Applies in Contract Actions I
I I
Emhart has shown that Rhode Island generally follows an interest-weighing approach i
i
adopted from the Restatement (Second) of Conflict ofLaws (Restatement) (Em Mem at 18shy
3
E-002002006013
I
I
19) Relying on dicta from Magnum Defense Inc v Harbour Group Ltd 248 F Supp 2d 64 I
69 (DRI 2003) Liberty Mutual erroneously argues that the choice of law determination
depends upon whether the claim is a tort claim or a contract claim (LM Mem at 16-17 20)
When a jurisdiction looks to interest analysis for choice of law it analyzes interests in tort cases
in a different way than in contract cases See Y Najarian v Natl Amusements Inc 768
A2d 1253 1255 (RI 2001) The nature of the case is relevant to which interests are considered
not whether interest analysis is to be utilized Magnum does not suggest that an interest analysis
cannot be used in a contract action
Rhode Island Supreme Court decisions provide a strong basis for concluding that Rhode
Islands use of an interest analysis is not limited to tort cases In Gordon v Clifford Metal Sales
Co 602 A2d 535 (RI 1992) a contract action concerning a secured transaction the trial court
relied upon both a choice-of-law provision in the Uniform Commercial Code and a second body
oflaw Section 6 of the Restatement 602 A2d at 537-39 The Rhode Island Supreme Court
discussed the two approaches in detail approving both Regarding the Restatement it said that
[t]he trial justice correctly concluded upon consideration of the aforementioned factors [in
Section 6] that Rhode Island law has the most appropriate relation to the transaction 602 A2d
at 539 In Gordon Rhode Islands reliance on interest analysis was applied in a contract case
Accordingly interest analysis is not confined to tort cases
Liberty Mutual also errs when it asserts that Gordon held that the Uniform Commercial
Code (UCC) choice-of-law provision was ultimately control~~g as to the rights of the
parties (LM Mem at 16) The Court stated that the UCC was controlling after it had
resolved the choice-of-law issue by determining that Rhode Island(s substantive law set forth in
4
E-002002006014
its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
5
E-002002006015
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
TABLE OF AUTHORITIES
A C Beals Co v Rhode Island Hosp 292 A2d 865 (RI 1971) 5
A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298 middot (D Mass 1990) 9
AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 (Iowa 1991) 45
Aerojet-General Corp v San Mateo County Superior Court 257 Cal Rptr 621 (Cal Ct App 1989) 45
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (BD Mich 1995) 9-10
Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421 (BD Mich 1998) 25
Aetna Cas amp Sur Co v Dow Chern Co 44 F Supp 2d 865 (BD Mich 1999) 28
Aetna Cas amp Sur Co v Kelly 889 F Supp 535 (RI 1995) 16
Afcan v Mut Fire Marine ampInland Ins Co 595 P2d 638 (Alaska 1979) 54
Allstate Ins Co v Quinn Constr Co 713 F Supp 35 (D Mass 1989) vacated as a result ofsettlement 784 F Supp 927 (D Mass~ 1990) 47-48
Allstate Ins Co v Russo 641 A2d 1304 (RI 1994) 39
American Home Assurance Co v Libbey-Owens-Ford Co 786 F2d 22 (1st Cir 1986) 33
Associates in Anesthesia Inc v Mut Benefit Life Ins Co 504 A2d 477 (RI 1986) 41-42
Baker v Hanover Ins Co 568 A2d 1023 (RI 1990) 7
Bartholomew v Ins Co ofN Am 502 F Supp 246 (DRI 1980) 7-8 ~ r~~
IBoeing Co v Aetna Cas amp Sur Co 784P2d 507 (Wash 1990) (en bane) 45 I
I i
Borg-Warner Corp v Ins Co ofN Am 174 AD2d 24 (App Civ 1993) 25
Brown v Church ofthe Holy Name ofJesus 252 A2d 176 (RI 1969) 5 7
iii
E-002002006004
Brunswick Corp v St Paul Fire amp Marine Ins Co 509 F Supp 750 (BD Pa 1981) 15
Buell Indus Inc v Greater NY Mut Ins Co 791 A2d 489 (Conn 2002) 38
Canron Inc v Fed Ins Co 918 P2d 937 (Wash Ct App 1996) 9
Chesapeake Util Corp v Am Home Assurance Co 704 F Supp 551 (D Del 1989) 9 11
Chicago Bridge amp Iron Co v Certain Underwriters at Lloyds London 797 NE2d 434 (Mass Ct App 2003) 52-53
Cincinnati Companies v W Am Ins Co 701 NE2d 499 (Til 1998) 49
Comunale v Traders amp General Ins Co 28 P2d 198 (Cal 1958) 54
ConanicutMarine Services Inc v Ins Co ofN Am 511 A2d 967 (RI 1986) 1 53-55
Cooley v John M Anderson Co 443 A2d 435 (RI 1982) 52
CPC Intl Inc v Northbrook Excess amp Surplus Ins Co 668 F2d 647 (RI 1995) 33 46
Crellin Technologies Inc v Equipmentlease Corp 18 F3d 1 (1st Cir 1994) 6
Curran Composites Inc v Liberty Mut Ins Co 874 F Supp 261 (Wb Mo 1994) 9 11
Doe v Liberty Mut Ins Co 667 NE2d 1149 (Mass 1997) 23
Eagle-Picher Indus Inc v Liberty Mut Ins Co 682 F2d 12 (1st Cir 1982) 33
Eagle-Picher Indus bull Inc v Liberty Mut Ins Co 829 F2d 227 (1st Cir 1987) 8 12
Edo Corp v Newark Ins Co 1997 WL 76575 (D Conn 1997) 10
Ellis v RI Pub Transit Authority 586 A2d 1055 RI 1991) 52
Flori v Allstate Insmiddot Co 388 A2d 25 (RI 1978) 1
Friendly Home Inc v Shareholders and Creditors ofRoyal Homestead middot Land Co 477 A2d 934 (RI 1984) 14
Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) 8
iv
E-002002006005
r
Gilbert Spruance v Pennsylvania Mfr Assn Ins Co 629 A2d 885 (NJ 1993) 9
Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 (Ohio 2002) 53
Gordonv Clifford Metal Sales Co 602 A2d 535 (RI 1992) 4-5
Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) 11
Great Lakes Container Corp v Natl Union Fire Ins Co 727 F 2d 30 (1st Cir 1984) 25
Grenga v National Surety Corp 317 A2d 433 (RI 1974) ~ 23
Gulf Chern amp Metallurgical Corp v Assoc Metals amp Minerals Corp 1 F3d 365 (5th Cir 1993) 51
Hartford Accident amp Indem Co v Dana Corp 690 NE2d 285 (Ind Ct App middot1998) 45
Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) ~ 7-8 11
Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d 576 (Mass 1990) 43-45
Herbert A Sullivan Inc v Utica Mut Ins Co 778 NE2d 522 (Mass 2003) 37
Hopkins v Equitable Life Assurance Society 270 A2d 915 (RI 1970) 41
Imperial Enterprises Inc V Firemans Fund Ins Co 535 F2d 287 (5th Cir 1976) 15
Insurance Co ofNorth America v Kayser-Roth Corp 1999 WL 813661 (RI Super Ct July 29 1999) 7-8
Insurance Co ofNorth America v Kayser-Roth Cor_p 770 A2d 403 (RI 2001) 31 44
James Graham Brown Foundation Inc V St Paul Fire amp Marine Ins Co 814 SW2d 273 (Ky 1991) 26
JH France Refractories Co v Allstate Ins Co 626 A2d 502 (Penn 1993) 52
Joy Technologies Inc v Liberty Mut Ins Co 421 SE2d 493 (W Va 1992) 9
Keene Cor_p v Ins Co ofN Am 667 F2d 1034 (DC Cir 1981) 52
~ ~~
f I
v
E-002002006006
KnollPharm Co v Automobile Ins Co ofHartford 167 F Supp 2d 1004 (ND Dl-2001) _ 15
LE Myers Co v Harbor Ins Co 394 NE2d 1200 (Til 1979) 43
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass May 17 2002) 10
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass Dec 5 2003) 24-28 46
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass Jati 27 2004) 24 27 r
LumbermensMut Cas Co v Belleville Indus 938 F2d 1423 (1st Cir 1991) 40-41 t
Maiorana v MacDonald 596 F2d 1072 (1st Cir 1979) 42
Magnum Defense~ Inc v Harbour Group Ltd 248 F Supp 2d 64 (DRI 2003) 4 f
I
Mapco Alaska Petroleum v Cent Natl Ins Co ofOmah~ 795 F Supp 941 (D Alaska 1991) 9
Marshall Contractors Inc v Peerless Ins Co 827 F Supp 91 (DRI1993) 7 i fMelville v Am Home Assurance Co 584 F2d 1306 (3d Cir 1978) 8
IMichaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI 1994) 7 53-54
Millipore Corp v Travelers Indemnity Co 115 F3d 21 (1st Cir 1997) 10
Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co ~ 230 A2d 21 (Conn_l967) _ 54
Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 (D Nev 1996) 9 ~
Montaup Electric Co v Ohio Brass Corp 561 F Supp 740 (DRI 1983) 7 r
~
~-shy
1
Mortonlntl v Aetna Cas amp Sur Co 666NE2d 1163 (Ohio Ct App 1995) 9
Mottola v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) 29
Najarian v Natl Amusements Inc 768 A2d 1253 (RI 2001) 4-5 I
NatlAm Ins Co v Jamison Agency Inc 501 F2d 1125 (8thCir 1974) 14-15
vi
E-002002006007
Nationwide Mut Fire Ins Co v Beville 825 So2d 999 (Fla App 2002) ~ 49
Nashua Corp v First State Inc Co 648 NE2d 1272 (1995) 3637
Nortek Inc v Liberty Mut Ins Co 858 F Supp 1231 (DRI 1994)7 48 51
N States Power Co v Fidelity amp Cas Co ofNY 504 NW2d 240 (Minn Ct App 1993) 45
Northville Indus Corp v Natl Union Fire Ins Co 679 NE2d 1044 (NY 1997) 38
Olin Corp v Ins Co ofN Am 221 F3d 307 (2d Cir 2000) 25
Owens-Illinois Inc v United Ins Co 650 A2d 974 (NJ 1994) 52-53
Paxton amp Vierling Steel Co v Great Am Ins Co 497 F Supp 573 (D Neb 1980) middot middot 15
Peerless Ins Co v Viegas 667 A2d 785 (RI 1995) 23 41
Preferred Mut Inc Co v Gamache 686 NE2d 989 (Mass 1997) 24
Pressman v Aetna Cas amp Sur Co 574 A2d 757 (RI 1990) 34 47
Providence Journal Co v Travelers Indem Co 938 F Supp 1066 (DRI 1996) ~ 27
Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 F Supp 1278 (D Utah 1994) 28
Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 (Mass 1984) 24
Reichhold Chern Inc v Hartford Accident amp Indem Co 703 A2d 1132 (Conn 1997) 10
Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 (RI Super 1998) 52
RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994) 52
Rogan v Auto-Owners Ins Co 832 P2d 212 (Ariz Ct App 1992) 54
St Paul Fire amp Marine Inc Co v McCormick amp Baxter CreosotingCo 923 P2d 1200 (Mich 1995) - 26
St Paul Fire amp Marine Inc Co v Thomas 273 So2d 117 (Fla Ct App 1973) 54
vii
E-002002006008
St Paul Fire amp Marine Ins Co v Warwick Dyeing Corp 26 F3d 1195 (1st Cir 1994) 27
Samson y Transamerica Ins Co 636 P2d 32 (Cal 1981) 54
Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir 1988) 10
Sauerv Homeindem Co 841 A2d 176 (Alaska 1991) 54
Security Ins Co ofHartford v Lumbermens Mut Cas Co 826 A2d 107 (Conn 2003) 52
fShapiro v Associated lntl ins 899 F2d 1116 11th Cir 1990) 8 I
Shell Oil Co v Winterthur Swiss Inc Co 12 Cal App 4th 715 (1993) 25-26
Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 (Md 1997) ~ 49 ~
Smartfoods Inc V Northbrook Property amp Cas Co 618 NE2d 1365 ~ [
(Mass Ct App 1993) 24
Smith v Hughes Aircraft Co 22 F3d 1432 1439-40 9th Cir 1993) 37
State exrel Davidson v Hoke 532 SE2d 50 (WVa 2000) 27
State ofVermont v CNAins Companies 779 A2d 662 (Vt 2001) 24 26
State Mut Life Assurance Co ofAm v Lumbermens Mut Cas Co 874 F Supp 451 (D Mass 1995) 28
SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631 (DRI 1987) 8
Tecumseh Prod Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) 25
Texas Property amp Cas Ins Guar Assoc v Southwest Aggregates Inc 982 SW2d 600 (Tex Ct App 1999) 51
Textron Inc v Aetna Cas amp Sur Co 723 A2d 1136 (RI 1994) 31-34
Textron Inc v Aetna Cas amp Sur Co 754 A2d 742 (RI 2000) 27 30-33 35-38
TPLC Inc v United Natl Ins Co 44 F3d 1484 (lOth Cir 1995) 52
Travelers Ins Co v Waltham Indus Lab Corp 883 F2d 1092 middot (1st Cir 1989) 26
viii
E-002002006009
Truck Ins Exchange v Vanport Homes Inc 58 P3d 276 (Wash 2002) 49
Trustees ofTufts Univ v Commerical Union Ins Co 616 NE2d 68 (Mass 1993) 34-35
Union Sav Bankv DeMarco 254 A2d 81 (RI 1969) 6-7
United Brass Works Inc v ArnmiddotGuar amp Liab Ins Co 819 F Supp 465 (WD Pa 1992) middot 11
Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass Ct App 1999) 25
Village ofMorrisville Water amp Light Dept v US Fid amp Guar 775 F Supp 718 (D Vt 1991) 26
Woodward v Stewart 243 A2d 917 (RI 1968) 5 7
Zarrella y MinnesotaMut Life Ins Co 824 A2d 1249 (RI 2003) ~ 6
Other Authority
Websters Third New Intl Dictionazy (unabridged) 2580 (1993) 39
L_
i r
ix
E-00200200601 0
INTRODUCTION
Emhart Industries Inc (Emhart) seeks insurance coverage from Liberty Mutual
Insurance Company (Liberty Mutual) Insurance Company ofNorth America (INA)
OneBeacon America Insurance Company (OneBeacon) and North River Insurance Company
(North River) for claims by the Environmental Protection Agency (EPA) for remediation of
the Centredale Manor Superfund Site (Site) in North Providence Rhode Island The INA
policy was in effect from late 1968 into 1970 and the OneBeacon policy was excess to it during
most of that period The Liberty Mutual policies were in effect from 1971 through 1979 North
River wrote an excess policy for the 1984 calendar year The policies provide occurrence-based
property coverage The INA and Liberty Mutual policies also include a defense obligation (see
Emharts opening memorandum (Em Mem) at 12 13-14)
Emhart moved for summary judgment against Liberty Mutual and INA on the ground
that they were in breach of the duty to defend The charging documents including a PRP letter
and two unilateral orders demonstrate the reasonable possibility of coverage under the policies
the duty to defend thus exists See Flori v Allstate Ins Co 388 A2d 25 26 (RI 1978)
Emhart further demonstrated that under principles of Conanicut Marine Services Inc v Ins Co
ofN Am 511 A2d 967 (RI 1986) a breach of the duty to defend gives rise to the duty to middot
indemnify Liberty Mutual and INA opposed Emharts motion and seek summary judgment in
their favor on the duties to defend and indemnify OneBeacon and North River moved for
summary judgment on the duty to indemnify This memorandum replies to the insurers
Emharts predecessor Metro-Atlantic Inc used a portion of the Site for chemical
manufacturing Another portion of the Site was used by New England Container Company
(NBC) a barrel recycler unrelated to Emhart Metro-Atlantic operated on the Site from the
E-002002006011
1940s until approximately December 1968 when it was consolidated with Crown Chemical
Corporation to form Crown Metro Inc (Cro~ Metro) the insured under the INA and
OneBeacon policies USM Corporation (USM) the insured under the Liberty Mutual policies
acquired Crown Metro which was later liquidated into USM USM eventually merged into
Emhart the insured under the North River policy Crown Metro USM and Emhart never
conducted any operations at the Site By merger and acquisition Emhart has succeeded to the
rights of each of its predecessors under their respectiv~ policies (see Em Mem at 3-4)
Following a June 1999 request for information the EPA issued a PRP letter in February
2000 and a Unilateral Administrative Order in April2000 A second such Order followed in
March 2001 (see Em Mem at 4-9) Under these Orders Emhart was compelled to undertake
substantial remedial actions or face serious fimmcial consequences The EPA described the
contamination of the Woonasquatucket River and land on which Metro-Atlantic had never
operated but made only general allegations regarding the suspected cause During discovery it
was determined that Metro-Atlantic manufactured hexachlorophene for use in soap during a brief
period in approximately 1964-65 Dioxin a principal contaminant at the Site was a by-product
of this manufacturing process The EPA listed eighteen other chemicals found in high
concentrations on the Site which would likely require remediation The EPA also alleged that
there was a serious fire at the Site in 1972 discovery has disclosed eflier fir(s and explosions
This memorandum addresses new issues raised by the insurers and issues raised in
Emharts motion It reinforces the showing in Emharts prior memorandum that Rhode Island
law applies to the Liberty Mutual and North River polices As Emhart demonstrates it is the
successor to the policies issued to Crown Metro and USM and is consequently entitled to the
benefits ofthese policies Moreover the duties to defend and indemnify were triggered by
2
E-002002006012
occurrences at the Site during all applicable policy periods Further the pollution exclusions in
the INA Liberty Mutual and North River policies are inapplicable regardless of whether Rhode
Island law or the more restrictive law of Massachusetts Connecticut or New York applies
OneBeacon may not rewrite its policy to add a pollution exclusion In addition the EPAs claim
is for damages under the PRP letter and unilateral orders which require remediation of actual
contamination rather than merely threatened future contamination any rental property
exclusions are inapplicable because inter alia third-party property is contaminated Finally
Emhart shows that INA may not avoid its duty to defend due to Emharts having additional
irtsUers or due to Emharts retainin~ counsel wPen the insurers refused to defend
Regardless of the applicable law Emhart is entitled to summary judgment against INA
and Liberty Mutual The insurers motions raise material issues of fact I I PRELIMINARY ISSUES li
1shyA Rhode Island Law Applies ~ Emhart has shown that in a conflicts determination Rhode Island follows the modern
r-
i
interest weighing analysis rather than the outdated lex loci contractus approach in determining I I
applicable substantive law (see Em Mem at 18-23) Under this analysis the substantive law of
the location of the contaminated site applies to a single-site environmental coverage dispute ~ While Liberty Mutual and North River erroneously look to the old rule neither insurer cites any
decision in which Rhode Island considered but chose not to apply an interest analysis or where t a court following the interest analysis in a situation involving a single contaminated industrial
f
site declined to adopt the substantive law ofthe state in which the site was located ~ 1 The Interest-Weighing Approach Applies in Contract Actions I
I I
Emhart has shown that Rhode Island generally follows an interest-weighing approach i
i
adopted from the Restatement (Second) of Conflict ofLaws (Restatement) (Em Mem at 18shy
3
E-002002006013
I
I
19) Relying on dicta from Magnum Defense Inc v Harbour Group Ltd 248 F Supp 2d 64 I
69 (DRI 2003) Liberty Mutual erroneously argues that the choice of law determination
depends upon whether the claim is a tort claim or a contract claim (LM Mem at 16-17 20)
When a jurisdiction looks to interest analysis for choice of law it analyzes interests in tort cases
in a different way than in contract cases See Y Najarian v Natl Amusements Inc 768
A2d 1253 1255 (RI 2001) The nature of the case is relevant to which interests are considered
not whether interest analysis is to be utilized Magnum does not suggest that an interest analysis
cannot be used in a contract action
Rhode Island Supreme Court decisions provide a strong basis for concluding that Rhode
Islands use of an interest analysis is not limited to tort cases In Gordon v Clifford Metal Sales
Co 602 A2d 535 (RI 1992) a contract action concerning a secured transaction the trial court
relied upon both a choice-of-law provision in the Uniform Commercial Code and a second body
oflaw Section 6 of the Restatement 602 A2d at 537-39 The Rhode Island Supreme Court
discussed the two approaches in detail approving both Regarding the Restatement it said that
[t]he trial justice correctly concluded upon consideration of the aforementioned factors [in
Section 6] that Rhode Island law has the most appropriate relation to the transaction 602 A2d
at 539 In Gordon Rhode Islands reliance on interest analysis was applied in a contract case
Accordingly interest analysis is not confined to tort cases
Liberty Mutual also errs when it asserts that Gordon held that the Uniform Commercial
Code (UCC) choice-of-law provision was ultimately control~~g as to the rights of the
parties (LM Mem at 16) The Court stated that the UCC was controlling after it had
resolved the choice-of-law issue by determining that Rhode Island(s substantive law set forth in
4
E-002002006014
its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
5
E-002002006015
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
Brunswick Corp v St Paul Fire amp Marine Ins Co 509 F Supp 750 (BD Pa 1981) 15
Buell Indus Inc v Greater NY Mut Ins Co 791 A2d 489 (Conn 2002) 38
Canron Inc v Fed Ins Co 918 P2d 937 (Wash Ct App 1996) 9
Chesapeake Util Corp v Am Home Assurance Co 704 F Supp 551 (D Del 1989) 9 11
Chicago Bridge amp Iron Co v Certain Underwriters at Lloyds London 797 NE2d 434 (Mass Ct App 2003) 52-53
Cincinnati Companies v W Am Ins Co 701 NE2d 499 (Til 1998) 49
Comunale v Traders amp General Ins Co 28 P2d 198 (Cal 1958) 54
ConanicutMarine Services Inc v Ins Co ofN Am 511 A2d 967 (RI 1986) 1 53-55
Cooley v John M Anderson Co 443 A2d 435 (RI 1982) 52
CPC Intl Inc v Northbrook Excess amp Surplus Ins Co 668 F2d 647 (RI 1995) 33 46
Crellin Technologies Inc v Equipmentlease Corp 18 F3d 1 (1st Cir 1994) 6
Curran Composites Inc v Liberty Mut Ins Co 874 F Supp 261 (Wb Mo 1994) 9 11
Doe v Liberty Mut Ins Co 667 NE2d 1149 (Mass 1997) 23
Eagle-Picher Indus Inc v Liberty Mut Ins Co 682 F2d 12 (1st Cir 1982) 33
Eagle-Picher Indus bull Inc v Liberty Mut Ins Co 829 F2d 227 (1st Cir 1987) 8 12
Edo Corp v Newark Ins Co 1997 WL 76575 (D Conn 1997) 10
Ellis v RI Pub Transit Authority 586 A2d 1055 RI 1991) 52
Flori v Allstate Insmiddot Co 388 A2d 25 (RI 1978) 1
Friendly Home Inc v Shareholders and Creditors ofRoyal Homestead middot Land Co 477 A2d 934 (RI 1984) 14
Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) 8
iv
E-002002006005
r
Gilbert Spruance v Pennsylvania Mfr Assn Ins Co 629 A2d 885 (NJ 1993) 9
Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 (Ohio 2002) 53
Gordonv Clifford Metal Sales Co 602 A2d 535 (RI 1992) 4-5
Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) 11
Great Lakes Container Corp v Natl Union Fire Ins Co 727 F 2d 30 (1st Cir 1984) 25
Grenga v National Surety Corp 317 A2d 433 (RI 1974) ~ 23
Gulf Chern amp Metallurgical Corp v Assoc Metals amp Minerals Corp 1 F3d 365 (5th Cir 1993) 51
Hartford Accident amp Indem Co v Dana Corp 690 NE2d 285 (Ind Ct App middot1998) 45
Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) ~ 7-8 11
Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d 576 (Mass 1990) 43-45
Herbert A Sullivan Inc v Utica Mut Ins Co 778 NE2d 522 (Mass 2003) 37
Hopkins v Equitable Life Assurance Society 270 A2d 915 (RI 1970) 41
Imperial Enterprises Inc V Firemans Fund Ins Co 535 F2d 287 (5th Cir 1976) 15
Insurance Co ofNorth America v Kayser-Roth Corp 1999 WL 813661 (RI Super Ct July 29 1999) 7-8
Insurance Co ofNorth America v Kayser-Roth Cor_p 770 A2d 403 (RI 2001) 31 44
James Graham Brown Foundation Inc V St Paul Fire amp Marine Ins Co 814 SW2d 273 (Ky 1991) 26
JH France Refractories Co v Allstate Ins Co 626 A2d 502 (Penn 1993) 52
Joy Technologies Inc v Liberty Mut Ins Co 421 SE2d 493 (W Va 1992) 9
Keene Cor_p v Ins Co ofN Am 667 F2d 1034 (DC Cir 1981) 52
~ ~~
f I
v
E-002002006006
KnollPharm Co v Automobile Ins Co ofHartford 167 F Supp 2d 1004 (ND Dl-2001) _ 15
LE Myers Co v Harbor Ins Co 394 NE2d 1200 (Til 1979) 43
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass May 17 2002) 10
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass Dec 5 2003) 24-28 46
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass Jati 27 2004) 24 27 r
LumbermensMut Cas Co v Belleville Indus 938 F2d 1423 (1st Cir 1991) 40-41 t
Maiorana v MacDonald 596 F2d 1072 (1st Cir 1979) 42
Magnum Defense~ Inc v Harbour Group Ltd 248 F Supp 2d 64 (DRI 2003) 4 f
I
Mapco Alaska Petroleum v Cent Natl Ins Co ofOmah~ 795 F Supp 941 (D Alaska 1991) 9
Marshall Contractors Inc v Peerless Ins Co 827 F Supp 91 (DRI1993) 7 i fMelville v Am Home Assurance Co 584 F2d 1306 (3d Cir 1978) 8
IMichaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI 1994) 7 53-54
Millipore Corp v Travelers Indemnity Co 115 F3d 21 (1st Cir 1997) 10
Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co ~ 230 A2d 21 (Conn_l967) _ 54
Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 (D Nev 1996) 9 ~
Montaup Electric Co v Ohio Brass Corp 561 F Supp 740 (DRI 1983) 7 r
~
~-shy
1
Mortonlntl v Aetna Cas amp Sur Co 666NE2d 1163 (Ohio Ct App 1995) 9
Mottola v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) 29
Najarian v Natl Amusements Inc 768 A2d 1253 (RI 2001) 4-5 I
NatlAm Ins Co v Jamison Agency Inc 501 F2d 1125 (8thCir 1974) 14-15
vi
E-002002006007
Nationwide Mut Fire Ins Co v Beville 825 So2d 999 (Fla App 2002) ~ 49
Nashua Corp v First State Inc Co 648 NE2d 1272 (1995) 3637
Nortek Inc v Liberty Mut Ins Co 858 F Supp 1231 (DRI 1994)7 48 51
N States Power Co v Fidelity amp Cas Co ofNY 504 NW2d 240 (Minn Ct App 1993) 45
Northville Indus Corp v Natl Union Fire Ins Co 679 NE2d 1044 (NY 1997) 38
Olin Corp v Ins Co ofN Am 221 F3d 307 (2d Cir 2000) 25
Owens-Illinois Inc v United Ins Co 650 A2d 974 (NJ 1994) 52-53
Paxton amp Vierling Steel Co v Great Am Ins Co 497 F Supp 573 (D Neb 1980) middot middot 15
Peerless Ins Co v Viegas 667 A2d 785 (RI 1995) 23 41
Preferred Mut Inc Co v Gamache 686 NE2d 989 (Mass 1997) 24
Pressman v Aetna Cas amp Sur Co 574 A2d 757 (RI 1990) 34 47
Providence Journal Co v Travelers Indem Co 938 F Supp 1066 (DRI 1996) ~ 27
Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 F Supp 1278 (D Utah 1994) 28
Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 (Mass 1984) 24
Reichhold Chern Inc v Hartford Accident amp Indem Co 703 A2d 1132 (Conn 1997) 10
Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 (RI Super 1998) 52
RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994) 52
Rogan v Auto-Owners Ins Co 832 P2d 212 (Ariz Ct App 1992) 54
St Paul Fire amp Marine Inc Co v McCormick amp Baxter CreosotingCo 923 P2d 1200 (Mich 1995) - 26
St Paul Fire amp Marine Inc Co v Thomas 273 So2d 117 (Fla Ct App 1973) 54
vii
E-002002006008
St Paul Fire amp Marine Ins Co v Warwick Dyeing Corp 26 F3d 1195 (1st Cir 1994) 27
Samson y Transamerica Ins Co 636 P2d 32 (Cal 1981) 54
Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir 1988) 10
Sauerv Homeindem Co 841 A2d 176 (Alaska 1991) 54
Security Ins Co ofHartford v Lumbermens Mut Cas Co 826 A2d 107 (Conn 2003) 52
fShapiro v Associated lntl ins 899 F2d 1116 11th Cir 1990) 8 I
Shell Oil Co v Winterthur Swiss Inc Co 12 Cal App 4th 715 (1993) 25-26
Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 (Md 1997) ~ 49 ~
Smartfoods Inc V Northbrook Property amp Cas Co 618 NE2d 1365 ~ [
(Mass Ct App 1993) 24
Smith v Hughes Aircraft Co 22 F3d 1432 1439-40 9th Cir 1993) 37
State exrel Davidson v Hoke 532 SE2d 50 (WVa 2000) 27
State ofVermont v CNAins Companies 779 A2d 662 (Vt 2001) 24 26
State Mut Life Assurance Co ofAm v Lumbermens Mut Cas Co 874 F Supp 451 (D Mass 1995) 28
SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631 (DRI 1987) 8
Tecumseh Prod Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) 25
Texas Property amp Cas Ins Guar Assoc v Southwest Aggregates Inc 982 SW2d 600 (Tex Ct App 1999) 51
Textron Inc v Aetna Cas amp Sur Co 723 A2d 1136 (RI 1994) 31-34
Textron Inc v Aetna Cas amp Sur Co 754 A2d 742 (RI 2000) 27 30-33 35-38
TPLC Inc v United Natl Ins Co 44 F3d 1484 (lOth Cir 1995) 52
Travelers Ins Co v Waltham Indus Lab Corp 883 F2d 1092 middot (1st Cir 1989) 26
viii
E-002002006009
Truck Ins Exchange v Vanport Homes Inc 58 P3d 276 (Wash 2002) 49
Trustees ofTufts Univ v Commerical Union Ins Co 616 NE2d 68 (Mass 1993) 34-35
Union Sav Bankv DeMarco 254 A2d 81 (RI 1969) 6-7
United Brass Works Inc v ArnmiddotGuar amp Liab Ins Co 819 F Supp 465 (WD Pa 1992) middot 11
Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass Ct App 1999) 25
Village ofMorrisville Water amp Light Dept v US Fid amp Guar 775 F Supp 718 (D Vt 1991) 26
Woodward v Stewart 243 A2d 917 (RI 1968) 5 7
Zarrella y MinnesotaMut Life Ins Co 824 A2d 1249 (RI 2003) ~ 6
Other Authority
Websters Third New Intl Dictionazy (unabridged) 2580 (1993) 39
L_
i r
ix
E-00200200601 0
INTRODUCTION
Emhart Industries Inc (Emhart) seeks insurance coverage from Liberty Mutual
Insurance Company (Liberty Mutual) Insurance Company ofNorth America (INA)
OneBeacon America Insurance Company (OneBeacon) and North River Insurance Company
(North River) for claims by the Environmental Protection Agency (EPA) for remediation of
the Centredale Manor Superfund Site (Site) in North Providence Rhode Island The INA
policy was in effect from late 1968 into 1970 and the OneBeacon policy was excess to it during
most of that period The Liberty Mutual policies were in effect from 1971 through 1979 North
River wrote an excess policy for the 1984 calendar year The policies provide occurrence-based
property coverage The INA and Liberty Mutual policies also include a defense obligation (see
Emharts opening memorandum (Em Mem) at 12 13-14)
Emhart moved for summary judgment against Liberty Mutual and INA on the ground
that they were in breach of the duty to defend The charging documents including a PRP letter
and two unilateral orders demonstrate the reasonable possibility of coverage under the policies
the duty to defend thus exists See Flori v Allstate Ins Co 388 A2d 25 26 (RI 1978)
Emhart further demonstrated that under principles of Conanicut Marine Services Inc v Ins Co
ofN Am 511 A2d 967 (RI 1986) a breach of the duty to defend gives rise to the duty to middot
indemnify Liberty Mutual and INA opposed Emharts motion and seek summary judgment in
their favor on the duties to defend and indemnify OneBeacon and North River moved for
summary judgment on the duty to indemnify This memorandum replies to the insurers
Emharts predecessor Metro-Atlantic Inc used a portion of the Site for chemical
manufacturing Another portion of the Site was used by New England Container Company
(NBC) a barrel recycler unrelated to Emhart Metro-Atlantic operated on the Site from the
E-002002006011
1940s until approximately December 1968 when it was consolidated with Crown Chemical
Corporation to form Crown Metro Inc (Cro~ Metro) the insured under the INA and
OneBeacon policies USM Corporation (USM) the insured under the Liberty Mutual policies
acquired Crown Metro which was later liquidated into USM USM eventually merged into
Emhart the insured under the North River policy Crown Metro USM and Emhart never
conducted any operations at the Site By merger and acquisition Emhart has succeeded to the
rights of each of its predecessors under their respectiv~ policies (see Em Mem at 3-4)
Following a June 1999 request for information the EPA issued a PRP letter in February
2000 and a Unilateral Administrative Order in April2000 A second such Order followed in
March 2001 (see Em Mem at 4-9) Under these Orders Emhart was compelled to undertake
substantial remedial actions or face serious fimmcial consequences The EPA described the
contamination of the Woonasquatucket River and land on which Metro-Atlantic had never
operated but made only general allegations regarding the suspected cause During discovery it
was determined that Metro-Atlantic manufactured hexachlorophene for use in soap during a brief
period in approximately 1964-65 Dioxin a principal contaminant at the Site was a by-product
of this manufacturing process The EPA listed eighteen other chemicals found in high
concentrations on the Site which would likely require remediation The EPA also alleged that
there was a serious fire at the Site in 1972 discovery has disclosed eflier fir(s and explosions
This memorandum addresses new issues raised by the insurers and issues raised in
Emharts motion It reinforces the showing in Emharts prior memorandum that Rhode Island
law applies to the Liberty Mutual and North River polices As Emhart demonstrates it is the
successor to the policies issued to Crown Metro and USM and is consequently entitled to the
benefits ofthese policies Moreover the duties to defend and indemnify were triggered by
2
E-002002006012
occurrences at the Site during all applicable policy periods Further the pollution exclusions in
the INA Liberty Mutual and North River policies are inapplicable regardless of whether Rhode
Island law or the more restrictive law of Massachusetts Connecticut or New York applies
OneBeacon may not rewrite its policy to add a pollution exclusion In addition the EPAs claim
is for damages under the PRP letter and unilateral orders which require remediation of actual
contamination rather than merely threatened future contamination any rental property
exclusions are inapplicable because inter alia third-party property is contaminated Finally
Emhart shows that INA may not avoid its duty to defend due to Emharts having additional
irtsUers or due to Emharts retainin~ counsel wPen the insurers refused to defend
Regardless of the applicable law Emhart is entitled to summary judgment against INA
and Liberty Mutual The insurers motions raise material issues of fact I I PRELIMINARY ISSUES li
1shyA Rhode Island Law Applies ~ Emhart has shown that in a conflicts determination Rhode Island follows the modern
r-
i
interest weighing analysis rather than the outdated lex loci contractus approach in determining I I
applicable substantive law (see Em Mem at 18-23) Under this analysis the substantive law of
the location of the contaminated site applies to a single-site environmental coverage dispute ~ While Liberty Mutual and North River erroneously look to the old rule neither insurer cites any
decision in which Rhode Island considered but chose not to apply an interest analysis or where t a court following the interest analysis in a situation involving a single contaminated industrial
f
site declined to adopt the substantive law ofthe state in which the site was located ~ 1 The Interest-Weighing Approach Applies in Contract Actions I
I I
Emhart has shown that Rhode Island generally follows an interest-weighing approach i
i
adopted from the Restatement (Second) of Conflict ofLaws (Restatement) (Em Mem at 18shy
3
E-002002006013
I
I
19) Relying on dicta from Magnum Defense Inc v Harbour Group Ltd 248 F Supp 2d 64 I
69 (DRI 2003) Liberty Mutual erroneously argues that the choice of law determination
depends upon whether the claim is a tort claim or a contract claim (LM Mem at 16-17 20)
When a jurisdiction looks to interest analysis for choice of law it analyzes interests in tort cases
in a different way than in contract cases See Y Najarian v Natl Amusements Inc 768
A2d 1253 1255 (RI 2001) The nature of the case is relevant to which interests are considered
not whether interest analysis is to be utilized Magnum does not suggest that an interest analysis
cannot be used in a contract action
Rhode Island Supreme Court decisions provide a strong basis for concluding that Rhode
Islands use of an interest analysis is not limited to tort cases In Gordon v Clifford Metal Sales
Co 602 A2d 535 (RI 1992) a contract action concerning a secured transaction the trial court
relied upon both a choice-of-law provision in the Uniform Commercial Code and a second body
oflaw Section 6 of the Restatement 602 A2d at 537-39 The Rhode Island Supreme Court
discussed the two approaches in detail approving both Regarding the Restatement it said that
[t]he trial justice correctly concluded upon consideration of the aforementioned factors [in
Section 6] that Rhode Island law has the most appropriate relation to the transaction 602 A2d
at 539 In Gordon Rhode Islands reliance on interest analysis was applied in a contract case
Accordingly interest analysis is not confined to tort cases
Liberty Mutual also errs when it asserts that Gordon held that the Uniform Commercial
Code (UCC) choice-of-law provision was ultimately control~~g as to the rights of the
parties (LM Mem at 16) The Court stated that the UCC was controlling after it had
resolved the choice-of-law issue by determining that Rhode Island(s substantive law set forth in
4
E-002002006014
its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
5
E-002002006015
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
r
Gilbert Spruance v Pennsylvania Mfr Assn Ins Co 629 A2d 885 (NJ 1993) 9
Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 (Ohio 2002) 53
Gordonv Clifford Metal Sales Co 602 A2d 535 (RI 1992) 4-5
Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) 11
Great Lakes Container Corp v Natl Union Fire Ins Co 727 F 2d 30 (1st Cir 1984) 25
Grenga v National Surety Corp 317 A2d 433 (RI 1974) ~ 23
Gulf Chern amp Metallurgical Corp v Assoc Metals amp Minerals Corp 1 F3d 365 (5th Cir 1993) 51
Hartford Accident amp Indem Co v Dana Corp 690 NE2d 285 (Ind Ct App middot1998) 45
Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) ~ 7-8 11
Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d 576 (Mass 1990) 43-45
Herbert A Sullivan Inc v Utica Mut Ins Co 778 NE2d 522 (Mass 2003) 37
Hopkins v Equitable Life Assurance Society 270 A2d 915 (RI 1970) 41
Imperial Enterprises Inc V Firemans Fund Ins Co 535 F2d 287 (5th Cir 1976) 15
Insurance Co ofNorth America v Kayser-Roth Corp 1999 WL 813661 (RI Super Ct July 29 1999) 7-8
Insurance Co ofNorth America v Kayser-Roth Cor_p 770 A2d 403 (RI 2001) 31 44
James Graham Brown Foundation Inc V St Paul Fire amp Marine Ins Co 814 SW2d 273 (Ky 1991) 26
JH France Refractories Co v Allstate Ins Co 626 A2d 502 (Penn 1993) 52
Joy Technologies Inc v Liberty Mut Ins Co 421 SE2d 493 (W Va 1992) 9
Keene Cor_p v Ins Co ofN Am 667 F2d 1034 (DC Cir 1981) 52
~ ~~
f I
v
E-002002006006
KnollPharm Co v Automobile Ins Co ofHartford 167 F Supp 2d 1004 (ND Dl-2001) _ 15
LE Myers Co v Harbor Ins Co 394 NE2d 1200 (Til 1979) 43
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass May 17 2002) 10
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass Dec 5 2003) 24-28 46
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass Jati 27 2004) 24 27 r
LumbermensMut Cas Co v Belleville Indus 938 F2d 1423 (1st Cir 1991) 40-41 t
Maiorana v MacDonald 596 F2d 1072 (1st Cir 1979) 42
Magnum Defense~ Inc v Harbour Group Ltd 248 F Supp 2d 64 (DRI 2003) 4 f
I
Mapco Alaska Petroleum v Cent Natl Ins Co ofOmah~ 795 F Supp 941 (D Alaska 1991) 9
Marshall Contractors Inc v Peerless Ins Co 827 F Supp 91 (DRI1993) 7 i fMelville v Am Home Assurance Co 584 F2d 1306 (3d Cir 1978) 8
IMichaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI 1994) 7 53-54
Millipore Corp v Travelers Indemnity Co 115 F3d 21 (1st Cir 1997) 10
Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co ~ 230 A2d 21 (Conn_l967) _ 54
Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 (D Nev 1996) 9 ~
Montaup Electric Co v Ohio Brass Corp 561 F Supp 740 (DRI 1983) 7 r
~
~-shy
1
Mortonlntl v Aetna Cas amp Sur Co 666NE2d 1163 (Ohio Ct App 1995) 9
Mottola v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) 29
Najarian v Natl Amusements Inc 768 A2d 1253 (RI 2001) 4-5 I
NatlAm Ins Co v Jamison Agency Inc 501 F2d 1125 (8thCir 1974) 14-15
vi
E-002002006007
Nationwide Mut Fire Ins Co v Beville 825 So2d 999 (Fla App 2002) ~ 49
Nashua Corp v First State Inc Co 648 NE2d 1272 (1995) 3637
Nortek Inc v Liberty Mut Ins Co 858 F Supp 1231 (DRI 1994)7 48 51
N States Power Co v Fidelity amp Cas Co ofNY 504 NW2d 240 (Minn Ct App 1993) 45
Northville Indus Corp v Natl Union Fire Ins Co 679 NE2d 1044 (NY 1997) 38
Olin Corp v Ins Co ofN Am 221 F3d 307 (2d Cir 2000) 25
Owens-Illinois Inc v United Ins Co 650 A2d 974 (NJ 1994) 52-53
Paxton amp Vierling Steel Co v Great Am Ins Co 497 F Supp 573 (D Neb 1980) middot middot 15
Peerless Ins Co v Viegas 667 A2d 785 (RI 1995) 23 41
Preferred Mut Inc Co v Gamache 686 NE2d 989 (Mass 1997) 24
Pressman v Aetna Cas amp Sur Co 574 A2d 757 (RI 1990) 34 47
Providence Journal Co v Travelers Indem Co 938 F Supp 1066 (DRI 1996) ~ 27
Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 F Supp 1278 (D Utah 1994) 28
Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 (Mass 1984) 24
Reichhold Chern Inc v Hartford Accident amp Indem Co 703 A2d 1132 (Conn 1997) 10
Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 (RI Super 1998) 52
RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994) 52
Rogan v Auto-Owners Ins Co 832 P2d 212 (Ariz Ct App 1992) 54
St Paul Fire amp Marine Inc Co v McCormick amp Baxter CreosotingCo 923 P2d 1200 (Mich 1995) - 26
St Paul Fire amp Marine Inc Co v Thomas 273 So2d 117 (Fla Ct App 1973) 54
vii
E-002002006008
St Paul Fire amp Marine Ins Co v Warwick Dyeing Corp 26 F3d 1195 (1st Cir 1994) 27
Samson y Transamerica Ins Co 636 P2d 32 (Cal 1981) 54
Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir 1988) 10
Sauerv Homeindem Co 841 A2d 176 (Alaska 1991) 54
Security Ins Co ofHartford v Lumbermens Mut Cas Co 826 A2d 107 (Conn 2003) 52
fShapiro v Associated lntl ins 899 F2d 1116 11th Cir 1990) 8 I
Shell Oil Co v Winterthur Swiss Inc Co 12 Cal App 4th 715 (1993) 25-26
Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 (Md 1997) ~ 49 ~
Smartfoods Inc V Northbrook Property amp Cas Co 618 NE2d 1365 ~ [
(Mass Ct App 1993) 24
Smith v Hughes Aircraft Co 22 F3d 1432 1439-40 9th Cir 1993) 37
State exrel Davidson v Hoke 532 SE2d 50 (WVa 2000) 27
State ofVermont v CNAins Companies 779 A2d 662 (Vt 2001) 24 26
State Mut Life Assurance Co ofAm v Lumbermens Mut Cas Co 874 F Supp 451 (D Mass 1995) 28
SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631 (DRI 1987) 8
Tecumseh Prod Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) 25
Texas Property amp Cas Ins Guar Assoc v Southwest Aggregates Inc 982 SW2d 600 (Tex Ct App 1999) 51
Textron Inc v Aetna Cas amp Sur Co 723 A2d 1136 (RI 1994) 31-34
Textron Inc v Aetna Cas amp Sur Co 754 A2d 742 (RI 2000) 27 30-33 35-38
TPLC Inc v United Natl Ins Co 44 F3d 1484 (lOth Cir 1995) 52
Travelers Ins Co v Waltham Indus Lab Corp 883 F2d 1092 middot (1st Cir 1989) 26
viii
E-002002006009
Truck Ins Exchange v Vanport Homes Inc 58 P3d 276 (Wash 2002) 49
Trustees ofTufts Univ v Commerical Union Ins Co 616 NE2d 68 (Mass 1993) 34-35
Union Sav Bankv DeMarco 254 A2d 81 (RI 1969) 6-7
United Brass Works Inc v ArnmiddotGuar amp Liab Ins Co 819 F Supp 465 (WD Pa 1992) middot 11
Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass Ct App 1999) 25
Village ofMorrisville Water amp Light Dept v US Fid amp Guar 775 F Supp 718 (D Vt 1991) 26
Woodward v Stewart 243 A2d 917 (RI 1968) 5 7
Zarrella y MinnesotaMut Life Ins Co 824 A2d 1249 (RI 2003) ~ 6
Other Authority
Websters Third New Intl Dictionazy (unabridged) 2580 (1993) 39
L_
i r
ix
E-00200200601 0
INTRODUCTION
Emhart Industries Inc (Emhart) seeks insurance coverage from Liberty Mutual
Insurance Company (Liberty Mutual) Insurance Company ofNorth America (INA)
OneBeacon America Insurance Company (OneBeacon) and North River Insurance Company
(North River) for claims by the Environmental Protection Agency (EPA) for remediation of
the Centredale Manor Superfund Site (Site) in North Providence Rhode Island The INA
policy was in effect from late 1968 into 1970 and the OneBeacon policy was excess to it during
most of that period The Liberty Mutual policies were in effect from 1971 through 1979 North
River wrote an excess policy for the 1984 calendar year The policies provide occurrence-based
property coverage The INA and Liberty Mutual policies also include a defense obligation (see
Emharts opening memorandum (Em Mem) at 12 13-14)
Emhart moved for summary judgment against Liberty Mutual and INA on the ground
that they were in breach of the duty to defend The charging documents including a PRP letter
and two unilateral orders demonstrate the reasonable possibility of coverage under the policies
the duty to defend thus exists See Flori v Allstate Ins Co 388 A2d 25 26 (RI 1978)
Emhart further demonstrated that under principles of Conanicut Marine Services Inc v Ins Co
ofN Am 511 A2d 967 (RI 1986) a breach of the duty to defend gives rise to the duty to middot
indemnify Liberty Mutual and INA opposed Emharts motion and seek summary judgment in
their favor on the duties to defend and indemnify OneBeacon and North River moved for
summary judgment on the duty to indemnify This memorandum replies to the insurers
Emharts predecessor Metro-Atlantic Inc used a portion of the Site for chemical
manufacturing Another portion of the Site was used by New England Container Company
(NBC) a barrel recycler unrelated to Emhart Metro-Atlantic operated on the Site from the
E-002002006011
1940s until approximately December 1968 when it was consolidated with Crown Chemical
Corporation to form Crown Metro Inc (Cro~ Metro) the insured under the INA and
OneBeacon policies USM Corporation (USM) the insured under the Liberty Mutual policies
acquired Crown Metro which was later liquidated into USM USM eventually merged into
Emhart the insured under the North River policy Crown Metro USM and Emhart never
conducted any operations at the Site By merger and acquisition Emhart has succeeded to the
rights of each of its predecessors under their respectiv~ policies (see Em Mem at 3-4)
Following a June 1999 request for information the EPA issued a PRP letter in February
2000 and a Unilateral Administrative Order in April2000 A second such Order followed in
March 2001 (see Em Mem at 4-9) Under these Orders Emhart was compelled to undertake
substantial remedial actions or face serious fimmcial consequences The EPA described the
contamination of the Woonasquatucket River and land on which Metro-Atlantic had never
operated but made only general allegations regarding the suspected cause During discovery it
was determined that Metro-Atlantic manufactured hexachlorophene for use in soap during a brief
period in approximately 1964-65 Dioxin a principal contaminant at the Site was a by-product
of this manufacturing process The EPA listed eighteen other chemicals found in high
concentrations on the Site which would likely require remediation The EPA also alleged that
there was a serious fire at the Site in 1972 discovery has disclosed eflier fir(s and explosions
This memorandum addresses new issues raised by the insurers and issues raised in
Emharts motion It reinforces the showing in Emharts prior memorandum that Rhode Island
law applies to the Liberty Mutual and North River polices As Emhart demonstrates it is the
successor to the policies issued to Crown Metro and USM and is consequently entitled to the
benefits ofthese policies Moreover the duties to defend and indemnify were triggered by
2
E-002002006012
occurrences at the Site during all applicable policy periods Further the pollution exclusions in
the INA Liberty Mutual and North River policies are inapplicable regardless of whether Rhode
Island law or the more restrictive law of Massachusetts Connecticut or New York applies
OneBeacon may not rewrite its policy to add a pollution exclusion In addition the EPAs claim
is for damages under the PRP letter and unilateral orders which require remediation of actual
contamination rather than merely threatened future contamination any rental property
exclusions are inapplicable because inter alia third-party property is contaminated Finally
Emhart shows that INA may not avoid its duty to defend due to Emharts having additional
irtsUers or due to Emharts retainin~ counsel wPen the insurers refused to defend
Regardless of the applicable law Emhart is entitled to summary judgment against INA
and Liberty Mutual The insurers motions raise material issues of fact I I PRELIMINARY ISSUES li
1shyA Rhode Island Law Applies ~ Emhart has shown that in a conflicts determination Rhode Island follows the modern
r-
i
interest weighing analysis rather than the outdated lex loci contractus approach in determining I I
applicable substantive law (see Em Mem at 18-23) Under this analysis the substantive law of
the location of the contaminated site applies to a single-site environmental coverage dispute ~ While Liberty Mutual and North River erroneously look to the old rule neither insurer cites any
decision in which Rhode Island considered but chose not to apply an interest analysis or where t a court following the interest analysis in a situation involving a single contaminated industrial
f
site declined to adopt the substantive law ofthe state in which the site was located ~ 1 The Interest-Weighing Approach Applies in Contract Actions I
I I
Emhart has shown that Rhode Island generally follows an interest-weighing approach i
i
adopted from the Restatement (Second) of Conflict ofLaws (Restatement) (Em Mem at 18shy
3
E-002002006013
I
I
19) Relying on dicta from Magnum Defense Inc v Harbour Group Ltd 248 F Supp 2d 64 I
69 (DRI 2003) Liberty Mutual erroneously argues that the choice of law determination
depends upon whether the claim is a tort claim or a contract claim (LM Mem at 16-17 20)
When a jurisdiction looks to interest analysis for choice of law it analyzes interests in tort cases
in a different way than in contract cases See Y Najarian v Natl Amusements Inc 768
A2d 1253 1255 (RI 2001) The nature of the case is relevant to which interests are considered
not whether interest analysis is to be utilized Magnum does not suggest that an interest analysis
cannot be used in a contract action
Rhode Island Supreme Court decisions provide a strong basis for concluding that Rhode
Islands use of an interest analysis is not limited to tort cases In Gordon v Clifford Metal Sales
Co 602 A2d 535 (RI 1992) a contract action concerning a secured transaction the trial court
relied upon both a choice-of-law provision in the Uniform Commercial Code and a second body
oflaw Section 6 of the Restatement 602 A2d at 537-39 The Rhode Island Supreme Court
discussed the two approaches in detail approving both Regarding the Restatement it said that
[t]he trial justice correctly concluded upon consideration of the aforementioned factors [in
Section 6] that Rhode Island law has the most appropriate relation to the transaction 602 A2d
at 539 In Gordon Rhode Islands reliance on interest analysis was applied in a contract case
Accordingly interest analysis is not confined to tort cases
Liberty Mutual also errs when it asserts that Gordon held that the Uniform Commercial
Code (UCC) choice-of-law provision was ultimately control~~g as to the rights of the
parties (LM Mem at 16) The Court stated that the UCC was controlling after it had
resolved the choice-of-law issue by determining that Rhode Island(s substantive law set forth in
4
E-002002006014
its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
5
E-002002006015
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
KnollPharm Co v Automobile Ins Co ofHartford 167 F Supp 2d 1004 (ND Dl-2001) _ 15
LE Myers Co v Harbor Ins Co 394 NE2d 1200 (Til 1979) 43
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass May 17 2002) 10
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass Dec 5 2003) 24-28 46
Liberty Mut Ins Co v Black amp Decker Corp CA No 96-10804-DPW (D Mass Jati 27 2004) 24 27 r
LumbermensMut Cas Co v Belleville Indus 938 F2d 1423 (1st Cir 1991) 40-41 t
Maiorana v MacDonald 596 F2d 1072 (1st Cir 1979) 42
Magnum Defense~ Inc v Harbour Group Ltd 248 F Supp 2d 64 (DRI 2003) 4 f
I
Mapco Alaska Petroleum v Cent Natl Ins Co ofOmah~ 795 F Supp 941 (D Alaska 1991) 9
Marshall Contractors Inc v Peerless Ins Co 827 F Supp 91 (DRI1993) 7 i fMelville v Am Home Assurance Co 584 F2d 1306 (3d Cir 1978) 8
IMichaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI 1994) 7 53-54
Millipore Corp v Travelers Indemnity Co 115 F3d 21 (1st Cir 1997) 10
Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co ~ 230 A2d 21 (Conn_l967) _ 54
Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 (D Nev 1996) 9 ~
Montaup Electric Co v Ohio Brass Corp 561 F Supp 740 (DRI 1983) 7 r
~
~-shy
1
Mortonlntl v Aetna Cas amp Sur Co 666NE2d 1163 (Ohio Ct App 1995) 9
Mottola v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) 29
Najarian v Natl Amusements Inc 768 A2d 1253 (RI 2001) 4-5 I
NatlAm Ins Co v Jamison Agency Inc 501 F2d 1125 (8thCir 1974) 14-15
vi
E-002002006007
Nationwide Mut Fire Ins Co v Beville 825 So2d 999 (Fla App 2002) ~ 49
Nashua Corp v First State Inc Co 648 NE2d 1272 (1995) 3637
Nortek Inc v Liberty Mut Ins Co 858 F Supp 1231 (DRI 1994)7 48 51
N States Power Co v Fidelity amp Cas Co ofNY 504 NW2d 240 (Minn Ct App 1993) 45
Northville Indus Corp v Natl Union Fire Ins Co 679 NE2d 1044 (NY 1997) 38
Olin Corp v Ins Co ofN Am 221 F3d 307 (2d Cir 2000) 25
Owens-Illinois Inc v United Ins Co 650 A2d 974 (NJ 1994) 52-53
Paxton amp Vierling Steel Co v Great Am Ins Co 497 F Supp 573 (D Neb 1980) middot middot 15
Peerless Ins Co v Viegas 667 A2d 785 (RI 1995) 23 41
Preferred Mut Inc Co v Gamache 686 NE2d 989 (Mass 1997) 24
Pressman v Aetna Cas amp Sur Co 574 A2d 757 (RI 1990) 34 47
Providence Journal Co v Travelers Indem Co 938 F Supp 1066 (DRI 1996) ~ 27
Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 F Supp 1278 (D Utah 1994) 28
Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 (Mass 1984) 24
Reichhold Chern Inc v Hartford Accident amp Indem Co 703 A2d 1132 (Conn 1997) 10
Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 (RI Super 1998) 52
RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994) 52
Rogan v Auto-Owners Ins Co 832 P2d 212 (Ariz Ct App 1992) 54
St Paul Fire amp Marine Inc Co v McCormick amp Baxter CreosotingCo 923 P2d 1200 (Mich 1995) - 26
St Paul Fire amp Marine Inc Co v Thomas 273 So2d 117 (Fla Ct App 1973) 54
vii
E-002002006008
St Paul Fire amp Marine Ins Co v Warwick Dyeing Corp 26 F3d 1195 (1st Cir 1994) 27
Samson y Transamerica Ins Co 636 P2d 32 (Cal 1981) 54
Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir 1988) 10
Sauerv Homeindem Co 841 A2d 176 (Alaska 1991) 54
Security Ins Co ofHartford v Lumbermens Mut Cas Co 826 A2d 107 (Conn 2003) 52
fShapiro v Associated lntl ins 899 F2d 1116 11th Cir 1990) 8 I
Shell Oil Co v Winterthur Swiss Inc Co 12 Cal App 4th 715 (1993) 25-26
Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 (Md 1997) ~ 49 ~
Smartfoods Inc V Northbrook Property amp Cas Co 618 NE2d 1365 ~ [
(Mass Ct App 1993) 24
Smith v Hughes Aircraft Co 22 F3d 1432 1439-40 9th Cir 1993) 37
State exrel Davidson v Hoke 532 SE2d 50 (WVa 2000) 27
State ofVermont v CNAins Companies 779 A2d 662 (Vt 2001) 24 26
State Mut Life Assurance Co ofAm v Lumbermens Mut Cas Co 874 F Supp 451 (D Mass 1995) 28
SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631 (DRI 1987) 8
Tecumseh Prod Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) 25
Texas Property amp Cas Ins Guar Assoc v Southwest Aggregates Inc 982 SW2d 600 (Tex Ct App 1999) 51
Textron Inc v Aetna Cas amp Sur Co 723 A2d 1136 (RI 1994) 31-34
Textron Inc v Aetna Cas amp Sur Co 754 A2d 742 (RI 2000) 27 30-33 35-38
TPLC Inc v United Natl Ins Co 44 F3d 1484 (lOth Cir 1995) 52
Travelers Ins Co v Waltham Indus Lab Corp 883 F2d 1092 middot (1st Cir 1989) 26
viii
E-002002006009
Truck Ins Exchange v Vanport Homes Inc 58 P3d 276 (Wash 2002) 49
Trustees ofTufts Univ v Commerical Union Ins Co 616 NE2d 68 (Mass 1993) 34-35
Union Sav Bankv DeMarco 254 A2d 81 (RI 1969) 6-7
United Brass Works Inc v ArnmiddotGuar amp Liab Ins Co 819 F Supp 465 (WD Pa 1992) middot 11
Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass Ct App 1999) 25
Village ofMorrisville Water amp Light Dept v US Fid amp Guar 775 F Supp 718 (D Vt 1991) 26
Woodward v Stewart 243 A2d 917 (RI 1968) 5 7
Zarrella y MinnesotaMut Life Ins Co 824 A2d 1249 (RI 2003) ~ 6
Other Authority
Websters Third New Intl Dictionazy (unabridged) 2580 (1993) 39
L_
i r
ix
E-00200200601 0
INTRODUCTION
Emhart Industries Inc (Emhart) seeks insurance coverage from Liberty Mutual
Insurance Company (Liberty Mutual) Insurance Company ofNorth America (INA)
OneBeacon America Insurance Company (OneBeacon) and North River Insurance Company
(North River) for claims by the Environmental Protection Agency (EPA) for remediation of
the Centredale Manor Superfund Site (Site) in North Providence Rhode Island The INA
policy was in effect from late 1968 into 1970 and the OneBeacon policy was excess to it during
most of that period The Liberty Mutual policies were in effect from 1971 through 1979 North
River wrote an excess policy for the 1984 calendar year The policies provide occurrence-based
property coverage The INA and Liberty Mutual policies also include a defense obligation (see
Emharts opening memorandum (Em Mem) at 12 13-14)
Emhart moved for summary judgment against Liberty Mutual and INA on the ground
that they were in breach of the duty to defend The charging documents including a PRP letter
and two unilateral orders demonstrate the reasonable possibility of coverage under the policies
the duty to defend thus exists See Flori v Allstate Ins Co 388 A2d 25 26 (RI 1978)
Emhart further demonstrated that under principles of Conanicut Marine Services Inc v Ins Co
ofN Am 511 A2d 967 (RI 1986) a breach of the duty to defend gives rise to the duty to middot
indemnify Liberty Mutual and INA opposed Emharts motion and seek summary judgment in
their favor on the duties to defend and indemnify OneBeacon and North River moved for
summary judgment on the duty to indemnify This memorandum replies to the insurers
Emharts predecessor Metro-Atlantic Inc used a portion of the Site for chemical
manufacturing Another portion of the Site was used by New England Container Company
(NBC) a barrel recycler unrelated to Emhart Metro-Atlantic operated on the Site from the
E-002002006011
1940s until approximately December 1968 when it was consolidated with Crown Chemical
Corporation to form Crown Metro Inc (Cro~ Metro) the insured under the INA and
OneBeacon policies USM Corporation (USM) the insured under the Liberty Mutual policies
acquired Crown Metro which was later liquidated into USM USM eventually merged into
Emhart the insured under the North River policy Crown Metro USM and Emhart never
conducted any operations at the Site By merger and acquisition Emhart has succeeded to the
rights of each of its predecessors under their respectiv~ policies (see Em Mem at 3-4)
Following a June 1999 request for information the EPA issued a PRP letter in February
2000 and a Unilateral Administrative Order in April2000 A second such Order followed in
March 2001 (see Em Mem at 4-9) Under these Orders Emhart was compelled to undertake
substantial remedial actions or face serious fimmcial consequences The EPA described the
contamination of the Woonasquatucket River and land on which Metro-Atlantic had never
operated but made only general allegations regarding the suspected cause During discovery it
was determined that Metro-Atlantic manufactured hexachlorophene for use in soap during a brief
period in approximately 1964-65 Dioxin a principal contaminant at the Site was a by-product
of this manufacturing process The EPA listed eighteen other chemicals found in high
concentrations on the Site which would likely require remediation The EPA also alleged that
there was a serious fire at the Site in 1972 discovery has disclosed eflier fir(s and explosions
This memorandum addresses new issues raised by the insurers and issues raised in
Emharts motion It reinforces the showing in Emharts prior memorandum that Rhode Island
law applies to the Liberty Mutual and North River polices As Emhart demonstrates it is the
successor to the policies issued to Crown Metro and USM and is consequently entitled to the
benefits ofthese policies Moreover the duties to defend and indemnify were triggered by
2
E-002002006012
occurrences at the Site during all applicable policy periods Further the pollution exclusions in
the INA Liberty Mutual and North River policies are inapplicable regardless of whether Rhode
Island law or the more restrictive law of Massachusetts Connecticut or New York applies
OneBeacon may not rewrite its policy to add a pollution exclusion In addition the EPAs claim
is for damages under the PRP letter and unilateral orders which require remediation of actual
contamination rather than merely threatened future contamination any rental property
exclusions are inapplicable because inter alia third-party property is contaminated Finally
Emhart shows that INA may not avoid its duty to defend due to Emharts having additional
irtsUers or due to Emharts retainin~ counsel wPen the insurers refused to defend
Regardless of the applicable law Emhart is entitled to summary judgment against INA
and Liberty Mutual The insurers motions raise material issues of fact I I PRELIMINARY ISSUES li
1shyA Rhode Island Law Applies ~ Emhart has shown that in a conflicts determination Rhode Island follows the modern
r-
i
interest weighing analysis rather than the outdated lex loci contractus approach in determining I I
applicable substantive law (see Em Mem at 18-23) Under this analysis the substantive law of
the location of the contaminated site applies to a single-site environmental coverage dispute ~ While Liberty Mutual and North River erroneously look to the old rule neither insurer cites any
decision in which Rhode Island considered but chose not to apply an interest analysis or where t a court following the interest analysis in a situation involving a single contaminated industrial
f
site declined to adopt the substantive law ofthe state in which the site was located ~ 1 The Interest-Weighing Approach Applies in Contract Actions I
I I
Emhart has shown that Rhode Island generally follows an interest-weighing approach i
i
adopted from the Restatement (Second) of Conflict ofLaws (Restatement) (Em Mem at 18shy
3
E-002002006013
I
I
19) Relying on dicta from Magnum Defense Inc v Harbour Group Ltd 248 F Supp 2d 64 I
69 (DRI 2003) Liberty Mutual erroneously argues that the choice of law determination
depends upon whether the claim is a tort claim or a contract claim (LM Mem at 16-17 20)
When a jurisdiction looks to interest analysis for choice of law it analyzes interests in tort cases
in a different way than in contract cases See Y Najarian v Natl Amusements Inc 768
A2d 1253 1255 (RI 2001) The nature of the case is relevant to which interests are considered
not whether interest analysis is to be utilized Magnum does not suggest that an interest analysis
cannot be used in a contract action
Rhode Island Supreme Court decisions provide a strong basis for concluding that Rhode
Islands use of an interest analysis is not limited to tort cases In Gordon v Clifford Metal Sales
Co 602 A2d 535 (RI 1992) a contract action concerning a secured transaction the trial court
relied upon both a choice-of-law provision in the Uniform Commercial Code and a second body
oflaw Section 6 of the Restatement 602 A2d at 537-39 The Rhode Island Supreme Court
discussed the two approaches in detail approving both Regarding the Restatement it said that
[t]he trial justice correctly concluded upon consideration of the aforementioned factors [in
Section 6] that Rhode Island law has the most appropriate relation to the transaction 602 A2d
at 539 In Gordon Rhode Islands reliance on interest analysis was applied in a contract case
Accordingly interest analysis is not confined to tort cases
Liberty Mutual also errs when it asserts that Gordon held that the Uniform Commercial
Code (UCC) choice-of-law provision was ultimately control~~g as to the rights of the
parties (LM Mem at 16) The Court stated that the UCC was controlling after it had
resolved the choice-of-law issue by determining that Rhode Island(s substantive law set forth in
4
E-002002006014
its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
5
E-002002006015
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
Nationwide Mut Fire Ins Co v Beville 825 So2d 999 (Fla App 2002) ~ 49
Nashua Corp v First State Inc Co 648 NE2d 1272 (1995) 3637
Nortek Inc v Liberty Mut Ins Co 858 F Supp 1231 (DRI 1994)7 48 51
N States Power Co v Fidelity amp Cas Co ofNY 504 NW2d 240 (Minn Ct App 1993) 45
Northville Indus Corp v Natl Union Fire Ins Co 679 NE2d 1044 (NY 1997) 38
Olin Corp v Ins Co ofN Am 221 F3d 307 (2d Cir 2000) 25
Owens-Illinois Inc v United Ins Co 650 A2d 974 (NJ 1994) 52-53
Paxton amp Vierling Steel Co v Great Am Ins Co 497 F Supp 573 (D Neb 1980) middot middot 15
Peerless Ins Co v Viegas 667 A2d 785 (RI 1995) 23 41
Preferred Mut Inc Co v Gamache 686 NE2d 989 (Mass 1997) 24
Pressman v Aetna Cas amp Sur Co 574 A2d 757 (RI 1990) 34 47
Providence Journal Co v Travelers Indem Co 938 F Supp 1066 (DRI 1996) ~ 27
Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 F Supp 1278 (D Utah 1994) 28
Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 (Mass 1984) 24
Reichhold Chern Inc v Hartford Accident amp Indem Co 703 A2d 1132 (Conn 1997) 10
Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 (RI Super 1998) 52
RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994) 52
Rogan v Auto-Owners Ins Co 832 P2d 212 (Ariz Ct App 1992) 54
St Paul Fire amp Marine Inc Co v McCormick amp Baxter CreosotingCo 923 P2d 1200 (Mich 1995) - 26
St Paul Fire amp Marine Inc Co v Thomas 273 So2d 117 (Fla Ct App 1973) 54
vii
E-002002006008
St Paul Fire amp Marine Ins Co v Warwick Dyeing Corp 26 F3d 1195 (1st Cir 1994) 27
Samson y Transamerica Ins Co 636 P2d 32 (Cal 1981) 54
Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir 1988) 10
Sauerv Homeindem Co 841 A2d 176 (Alaska 1991) 54
Security Ins Co ofHartford v Lumbermens Mut Cas Co 826 A2d 107 (Conn 2003) 52
fShapiro v Associated lntl ins 899 F2d 1116 11th Cir 1990) 8 I
Shell Oil Co v Winterthur Swiss Inc Co 12 Cal App 4th 715 (1993) 25-26
Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 (Md 1997) ~ 49 ~
Smartfoods Inc V Northbrook Property amp Cas Co 618 NE2d 1365 ~ [
(Mass Ct App 1993) 24
Smith v Hughes Aircraft Co 22 F3d 1432 1439-40 9th Cir 1993) 37
State exrel Davidson v Hoke 532 SE2d 50 (WVa 2000) 27
State ofVermont v CNAins Companies 779 A2d 662 (Vt 2001) 24 26
State Mut Life Assurance Co ofAm v Lumbermens Mut Cas Co 874 F Supp 451 (D Mass 1995) 28
SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631 (DRI 1987) 8
Tecumseh Prod Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) 25
Texas Property amp Cas Ins Guar Assoc v Southwest Aggregates Inc 982 SW2d 600 (Tex Ct App 1999) 51
Textron Inc v Aetna Cas amp Sur Co 723 A2d 1136 (RI 1994) 31-34
Textron Inc v Aetna Cas amp Sur Co 754 A2d 742 (RI 2000) 27 30-33 35-38
TPLC Inc v United Natl Ins Co 44 F3d 1484 (lOth Cir 1995) 52
Travelers Ins Co v Waltham Indus Lab Corp 883 F2d 1092 middot (1st Cir 1989) 26
viii
E-002002006009
Truck Ins Exchange v Vanport Homes Inc 58 P3d 276 (Wash 2002) 49
Trustees ofTufts Univ v Commerical Union Ins Co 616 NE2d 68 (Mass 1993) 34-35
Union Sav Bankv DeMarco 254 A2d 81 (RI 1969) 6-7
United Brass Works Inc v ArnmiddotGuar amp Liab Ins Co 819 F Supp 465 (WD Pa 1992) middot 11
Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass Ct App 1999) 25
Village ofMorrisville Water amp Light Dept v US Fid amp Guar 775 F Supp 718 (D Vt 1991) 26
Woodward v Stewart 243 A2d 917 (RI 1968) 5 7
Zarrella y MinnesotaMut Life Ins Co 824 A2d 1249 (RI 2003) ~ 6
Other Authority
Websters Third New Intl Dictionazy (unabridged) 2580 (1993) 39
L_
i r
ix
E-00200200601 0
INTRODUCTION
Emhart Industries Inc (Emhart) seeks insurance coverage from Liberty Mutual
Insurance Company (Liberty Mutual) Insurance Company ofNorth America (INA)
OneBeacon America Insurance Company (OneBeacon) and North River Insurance Company
(North River) for claims by the Environmental Protection Agency (EPA) for remediation of
the Centredale Manor Superfund Site (Site) in North Providence Rhode Island The INA
policy was in effect from late 1968 into 1970 and the OneBeacon policy was excess to it during
most of that period The Liberty Mutual policies were in effect from 1971 through 1979 North
River wrote an excess policy for the 1984 calendar year The policies provide occurrence-based
property coverage The INA and Liberty Mutual policies also include a defense obligation (see
Emharts opening memorandum (Em Mem) at 12 13-14)
Emhart moved for summary judgment against Liberty Mutual and INA on the ground
that they were in breach of the duty to defend The charging documents including a PRP letter
and two unilateral orders demonstrate the reasonable possibility of coverage under the policies
the duty to defend thus exists See Flori v Allstate Ins Co 388 A2d 25 26 (RI 1978)
Emhart further demonstrated that under principles of Conanicut Marine Services Inc v Ins Co
ofN Am 511 A2d 967 (RI 1986) a breach of the duty to defend gives rise to the duty to middot
indemnify Liberty Mutual and INA opposed Emharts motion and seek summary judgment in
their favor on the duties to defend and indemnify OneBeacon and North River moved for
summary judgment on the duty to indemnify This memorandum replies to the insurers
Emharts predecessor Metro-Atlantic Inc used a portion of the Site for chemical
manufacturing Another portion of the Site was used by New England Container Company
(NBC) a barrel recycler unrelated to Emhart Metro-Atlantic operated on the Site from the
E-002002006011
1940s until approximately December 1968 when it was consolidated with Crown Chemical
Corporation to form Crown Metro Inc (Cro~ Metro) the insured under the INA and
OneBeacon policies USM Corporation (USM) the insured under the Liberty Mutual policies
acquired Crown Metro which was later liquidated into USM USM eventually merged into
Emhart the insured under the North River policy Crown Metro USM and Emhart never
conducted any operations at the Site By merger and acquisition Emhart has succeeded to the
rights of each of its predecessors under their respectiv~ policies (see Em Mem at 3-4)
Following a June 1999 request for information the EPA issued a PRP letter in February
2000 and a Unilateral Administrative Order in April2000 A second such Order followed in
March 2001 (see Em Mem at 4-9) Under these Orders Emhart was compelled to undertake
substantial remedial actions or face serious fimmcial consequences The EPA described the
contamination of the Woonasquatucket River and land on which Metro-Atlantic had never
operated but made only general allegations regarding the suspected cause During discovery it
was determined that Metro-Atlantic manufactured hexachlorophene for use in soap during a brief
period in approximately 1964-65 Dioxin a principal contaminant at the Site was a by-product
of this manufacturing process The EPA listed eighteen other chemicals found in high
concentrations on the Site which would likely require remediation The EPA also alleged that
there was a serious fire at the Site in 1972 discovery has disclosed eflier fir(s and explosions
This memorandum addresses new issues raised by the insurers and issues raised in
Emharts motion It reinforces the showing in Emharts prior memorandum that Rhode Island
law applies to the Liberty Mutual and North River polices As Emhart demonstrates it is the
successor to the policies issued to Crown Metro and USM and is consequently entitled to the
benefits ofthese policies Moreover the duties to defend and indemnify were triggered by
2
E-002002006012
occurrences at the Site during all applicable policy periods Further the pollution exclusions in
the INA Liberty Mutual and North River policies are inapplicable regardless of whether Rhode
Island law or the more restrictive law of Massachusetts Connecticut or New York applies
OneBeacon may not rewrite its policy to add a pollution exclusion In addition the EPAs claim
is for damages under the PRP letter and unilateral orders which require remediation of actual
contamination rather than merely threatened future contamination any rental property
exclusions are inapplicable because inter alia third-party property is contaminated Finally
Emhart shows that INA may not avoid its duty to defend due to Emharts having additional
irtsUers or due to Emharts retainin~ counsel wPen the insurers refused to defend
Regardless of the applicable law Emhart is entitled to summary judgment against INA
and Liberty Mutual The insurers motions raise material issues of fact I I PRELIMINARY ISSUES li
1shyA Rhode Island Law Applies ~ Emhart has shown that in a conflicts determination Rhode Island follows the modern
r-
i
interest weighing analysis rather than the outdated lex loci contractus approach in determining I I
applicable substantive law (see Em Mem at 18-23) Under this analysis the substantive law of
the location of the contaminated site applies to a single-site environmental coverage dispute ~ While Liberty Mutual and North River erroneously look to the old rule neither insurer cites any
decision in which Rhode Island considered but chose not to apply an interest analysis or where t a court following the interest analysis in a situation involving a single contaminated industrial
f
site declined to adopt the substantive law ofthe state in which the site was located ~ 1 The Interest-Weighing Approach Applies in Contract Actions I
I I
Emhart has shown that Rhode Island generally follows an interest-weighing approach i
i
adopted from the Restatement (Second) of Conflict ofLaws (Restatement) (Em Mem at 18shy
3
E-002002006013
I
I
19) Relying on dicta from Magnum Defense Inc v Harbour Group Ltd 248 F Supp 2d 64 I
69 (DRI 2003) Liberty Mutual erroneously argues that the choice of law determination
depends upon whether the claim is a tort claim or a contract claim (LM Mem at 16-17 20)
When a jurisdiction looks to interest analysis for choice of law it analyzes interests in tort cases
in a different way than in contract cases See Y Najarian v Natl Amusements Inc 768
A2d 1253 1255 (RI 2001) The nature of the case is relevant to which interests are considered
not whether interest analysis is to be utilized Magnum does not suggest that an interest analysis
cannot be used in a contract action
Rhode Island Supreme Court decisions provide a strong basis for concluding that Rhode
Islands use of an interest analysis is not limited to tort cases In Gordon v Clifford Metal Sales
Co 602 A2d 535 (RI 1992) a contract action concerning a secured transaction the trial court
relied upon both a choice-of-law provision in the Uniform Commercial Code and a second body
oflaw Section 6 of the Restatement 602 A2d at 537-39 The Rhode Island Supreme Court
discussed the two approaches in detail approving both Regarding the Restatement it said that
[t]he trial justice correctly concluded upon consideration of the aforementioned factors [in
Section 6] that Rhode Island law has the most appropriate relation to the transaction 602 A2d
at 539 In Gordon Rhode Islands reliance on interest analysis was applied in a contract case
Accordingly interest analysis is not confined to tort cases
Liberty Mutual also errs when it asserts that Gordon held that the Uniform Commercial
Code (UCC) choice-of-law provision was ultimately control~~g as to the rights of the
parties (LM Mem at 16) The Court stated that the UCC was controlling after it had
resolved the choice-of-law issue by determining that Rhode Island(s substantive law set forth in
4
E-002002006014
its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
5
E-002002006015
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
St Paul Fire amp Marine Ins Co v Warwick Dyeing Corp 26 F3d 1195 (1st Cir 1994) 27
Samson y Transamerica Ins Co 636 P2d 32 (Cal 1981) 54
Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir 1988) 10
Sauerv Homeindem Co 841 A2d 176 (Alaska 1991) 54
Security Ins Co ofHartford v Lumbermens Mut Cas Co 826 A2d 107 (Conn 2003) 52
fShapiro v Associated lntl ins 899 F2d 1116 11th Cir 1990) 8 I
Shell Oil Co v Winterthur Swiss Inc Co 12 Cal App 4th 715 (1993) 25-26
Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 (Md 1997) ~ 49 ~
Smartfoods Inc V Northbrook Property amp Cas Co 618 NE2d 1365 ~ [
(Mass Ct App 1993) 24
Smith v Hughes Aircraft Co 22 F3d 1432 1439-40 9th Cir 1993) 37
State exrel Davidson v Hoke 532 SE2d 50 (WVa 2000) 27
State ofVermont v CNAins Companies 779 A2d 662 (Vt 2001) 24 26
State Mut Life Assurance Co ofAm v Lumbermens Mut Cas Co 874 F Supp 451 (D Mass 1995) 28
SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631 (DRI 1987) 8
Tecumseh Prod Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) 25
Texas Property amp Cas Ins Guar Assoc v Southwest Aggregates Inc 982 SW2d 600 (Tex Ct App 1999) 51
Textron Inc v Aetna Cas amp Sur Co 723 A2d 1136 (RI 1994) 31-34
Textron Inc v Aetna Cas amp Sur Co 754 A2d 742 (RI 2000) 27 30-33 35-38
TPLC Inc v United Natl Ins Co 44 F3d 1484 (lOth Cir 1995) 52
Travelers Ins Co v Waltham Indus Lab Corp 883 F2d 1092 middot (1st Cir 1989) 26
viii
E-002002006009
Truck Ins Exchange v Vanport Homes Inc 58 P3d 276 (Wash 2002) 49
Trustees ofTufts Univ v Commerical Union Ins Co 616 NE2d 68 (Mass 1993) 34-35
Union Sav Bankv DeMarco 254 A2d 81 (RI 1969) 6-7
United Brass Works Inc v ArnmiddotGuar amp Liab Ins Co 819 F Supp 465 (WD Pa 1992) middot 11
Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass Ct App 1999) 25
Village ofMorrisville Water amp Light Dept v US Fid amp Guar 775 F Supp 718 (D Vt 1991) 26
Woodward v Stewart 243 A2d 917 (RI 1968) 5 7
Zarrella y MinnesotaMut Life Ins Co 824 A2d 1249 (RI 2003) ~ 6
Other Authority
Websters Third New Intl Dictionazy (unabridged) 2580 (1993) 39
L_
i r
ix
E-00200200601 0
INTRODUCTION
Emhart Industries Inc (Emhart) seeks insurance coverage from Liberty Mutual
Insurance Company (Liberty Mutual) Insurance Company ofNorth America (INA)
OneBeacon America Insurance Company (OneBeacon) and North River Insurance Company
(North River) for claims by the Environmental Protection Agency (EPA) for remediation of
the Centredale Manor Superfund Site (Site) in North Providence Rhode Island The INA
policy was in effect from late 1968 into 1970 and the OneBeacon policy was excess to it during
most of that period The Liberty Mutual policies were in effect from 1971 through 1979 North
River wrote an excess policy for the 1984 calendar year The policies provide occurrence-based
property coverage The INA and Liberty Mutual policies also include a defense obligation (see
Emharts opening memorandum (Em Mem) at 12 13-14)
Emhart moved for summary judgment against Liberty Mutual and INA on the ground
that they were in breach of the duty to defend The charging documents including a PRP letter
and two unilateral orders demonstrate the reasonable possibility of coverage under the policies
the duty to defend thus exists See Flori v Allstate Ins Co 388 A2d 25 26 (RI 1978)
Emhart further demonstrated that under principles of Conanicut Marine Services Inc v Ins Co
ofN Am 511 A2d 967 (RI 1986) a breach of the duty to defend gives rise to the duty to middot
indemnify Liberty Mutual and INA opposed Emharts motion and seek summary judgment in
their favor on the duties to defend and indemnify OneBeacon and North River moved for
summary judgment on the duty to indemnify This memorandum replies to the insurers
Emharts predecessor Metro-Atlantic Inc used a portion of the Site for chemical
manufacturing Another portion of the Site was used by New England Container Company
(NBC) a barrel recycler unrelated to Emhart Metro-Atlantic operated on the Site from the
E-002002006011
1940s until approximately December 1968 when it was consolidated with Crown Chemical
Corporation to form Crown Metro Inc (Cro~ Metro) the insured under the INA and
OneBeacon policies USM Corporation (USM) the insured under the Liberty Mutual policies
acquired Crown Metro which was later liquidated into USM USM eventually merged into
Emhart the insured under the North River policy Crown Metro USM and Emhart never
conducted any operations at the Site By merger and acquisition Emhart has succeeded to the
rights of each of its predecessors under their respectiv~ policies (see Em Mem at 3-4)
Following a June 1999 request for information the EPA issued a PRP letter in February
2000 and a Unilateral Administrative Order in April2000 A second such Order followed in
March 2001 (see Em Mem at 4-9) Under these Orders Emhart was compelled to undertake
substantial remedial actions or face serious fimmcial consequences The EPA described the
contamination of the Woonasquatucket River and land on which Metro-Atlantic had never
operated but made only general allegations regarding the suspected cause During discovery it
was determined that Metro-Atlantic manufactured hexachlorophene for use in soap during a brief
period in approximately 1964-65 Dioxin a principal contaminant at the Site was a by-product
of this manufacturing process The EPA listed eighteen other chemicals found in high
concentrations on the Site which would likely require remediation The EPA also alleged that
there was a serious fire at the Site in 1972 discovery has disclosed eflier fir(s and explosions
This memorandum addresses new issues raised by the insurers and issues raised in
Emharts motion It reinforces the showing in Emharts prior memorandum that Rhode Island
law applies to the Liberty Mutual and North River polices As Emhart demonstrates it is the
successor to the policies issued to Crown Metro and USM and is consequently entitled to the
benefits ofthese policies Moreover the duties to defend and indemnify were triggered by
2
E-002002006012
occurrences at the Site during all applicable policy periods Further the pollution exclusions in
the INA Liberty Mutual and North River policies are inapplicable regardless of whether Rhode
Island law or the more restrictive law of Massachusetts Connecticut or New York applies
OneBeacon may not rewrite its policy to add a pollution exclusion In addition the EPAs claim
is for damages under the PRP letter and unilateral orders which require remediation of actual
contamination rather than merely threatened future contamination any rental property
exclusions are inapplicable because inter alia third-party property is contaminated Finally
Emhart shows that INA may not avoid its duty to defend due to Emharts having additional
irtsUers or due to Emharts retainin~ counsel wPen the insurers refused to defend
Regardless of the applicable law Emhart is entitled to summary judgment against INA
and Liberty Mutual The insurers motions raise material issues of fact I I PRELIMINARY ISSUES li
1shyA Rhode Island Law Applies ~ Emhart has shown that in a conflicts determination Rhode Island follows the modern
r-
i
interest weighing analysis rather than the outdated lex loci contractus approach in determining I I
applicable substantive law (see Em Mem at 18-23) Under this analysis the substantive law of
the location of the contaminated site applies to a single-site environmental coverage dispute ~ While Liberty Mutual and North River erroneously look to the old rule neither insurer cites any
decision in which Rhode Island considered but chose not to apply an interest analysis or where t a court following the interest analysis in a situation involving a single contaminated industrial
f
site declined to adopt the substantive law ofthe state in which the site was located ~ 1 The Interest-Weighing Approach Applies in Contract Actions I
I I
Emhart has shown that Rhode Island generally follows an interest-weighing approach i
i
adopted from the Restatement (Second) of Conflict ofLaws (Restatement) (Em Mem at 18shy
3
E-002002006013
I
I
19) Relying on dicta from Magnum Defense Inc v Harbour Group Ltd 248 F Supp 2d 64 I
69 (DRI 2003) Liberty Mutual erroneously argues that the choice of law determination
depends upon whether the claim is a tort claim or a contract claim (LM Mem at 16-17 20)
When a jurisdiction looks to interest analysis for choice of law it analyzes interests in tort cases
in a different way than in contract cases See Y Najarian v Natl Amusements Inc 768
A2d 1253 1255 (RI 2001) The nature of the case is relevant to which interests are considered
not whether interest analysis is to be utilized Magnum does not suggest that an interest analysis
cannot be used in a contract action
Rhode Island Supreme Court decisions provide a strong basis for concluding that Rhode
Islands use of an interest analysis is not limited to tort cases In Gordon v Clifford Metal Sales
Co 602 A2d 535 (RI 1992) a contract action concerning a secured transaction the trial court
relied upon both a choice-of-law provision in the Uniform Commercial Code and a second body
oflaw Section 6 of the Restatement 602 A2d at 537-39 The Rhode Island Supreme Court
discussed the two approaches in detail approving both Regarding the Restatement it said that
[t]he trial justice correctly concluded upon consideration of the aforementioned factors [in
Section 6] that Rhode Island law has the most appropriate relation to the transaction 602 A2d
at 539 In Gordon Rhode Islands reliance on interest analysis was applied in a contract case
Accordingly interest analysis is not confined to tort cases
Liberty Mutual also errs when it asserts that Gordon held that the Uniform Commercial
Code (UCC) choice-of-law provision was ultimately control~~g as to the rights of the
parties (LM Mem at 16) The Court stated that the UCC was controlling after it had
resolved the choice-of-law issue by determining that Rhode Island(s substantive law set forth in
4
E-002002006014
its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
5
E-002002006015
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
Truck Ins Exchange v Vanport Homes Inc 58 P3d 276 (Wash 2002) 49
Trustees ofTufts Univ v Commerical Union Ins Co 616 NE2d 68 (Mass 1993) 34-35
Union Sav Bankv DeMarco 254 A2d 81 (RI 1969) 6-7
United Brass Works Inc v ArnmiddotGuar amp Liab Ins Co 819 F Supp 465 (WD Pa 1992) middot 11
Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass Ct App 1999) 25
Village ofMorrisville Water amp Light Dept v US Fid amp Guar 775 F Supp 718 (D Vt 1991) 26
Woodward v Stewart 243 A2d 917 (RI 1968) 5 7
Zarrella y MinnesotaMut Life Ins Co 824 A2d 1249 (RI 2003) ~ 6
Other Authority
Websters Third New Intl Dictionazy (unabridged) 2580 (1993) 39
L_
i r
ix
E-00200200601 0
INTRODUCTION
Emhart Industries Inc (Emhart) seeks insurance coverage from Liberty Mutual
Insurance Company (Liberty Mutual) Insurance Company ofNorth America (INA)
OneBeacon America Insurance Company (OneBeacon) and North River Insurance Company
(North River) for claims by the Environmental Protection Agency (EPA) for remediation of
the Centredale Manor Superfund Site (Site) in North Providence Rhode Island The INA
policy was in effect from late 1968 into 1970 and the OneBeacon policy was excess to it during
most of that period The Liberty Mutual policies were in effect from 1971 through 1979 North
River wrote an excess policy for the 1984 calendar year The policies provide occurrence-based
property coverage The INA and Liberty Mutual policies also include a defense obligation (see
Emharts opening memorandum (Em Mem) at 12 13-14)
Emhart moved for summary judgment against Liberty Mutual and INA on the ground
that they were in breach of the duty to defend The charging documents including a PRP letter
and two unilateral orders demonstrate the reasonable possibility of coverage under the policies
the duty to defend thus exists See Flori v Allstate Ins Co 388 A2d 25 26 (RI 1978)
Emhart further demonstrated that under principles of Conanicut Marine Services Inc v Ins Co
ofN Am 511 A2d 967 (RI 1986) a breach of the duty to defend gives rise to the duty to middot
indemnify Liberty Mutual and INA opposed Emharts motion and seek summary judgment in
their favor on the duties to defend and indemnify OneBeacon and North River moved for
summary judgment on the duty to indemnify This memorandum replies to the insurers
Emharts predecessor Metro-Atlantic Inc used a portion of the Site for chemical
manufacturing Another portion of the Site was used by New England Container Company
(NBC) a barrel recycler unrelated to Emhart Metro-Atlantic operated on the Site from the
E-002002006011
1940s until approximately December 1968 when it was consolidated with Crown Chemical
Corporation to form Crown Metro Inc (Cro~ Metro) the insured under the INA and
OneBeacon policies USM Corporation (USM) the insured under the Liberty Mutual policies
acquired Crown Metro which was later liquidated into USM USM eventually merged into
Emhart the insured under the North River policy Crown Metro USM and Emhart never
conducted any operations at the Site By merger and acquisition Emhart has succeeded to the
rights of each of its predecessors under their respectiv~ policies (see Em Mem at 3-4)
Following a June 1999 request for information the EPA issued a PRP letter in February
2000 and a Unilateral Administrative Order in April2000 A second such Order followed in
March 2001 (see Em Mem at 4-9) Under these Orders Emhart was compelled to undertake
substantial remedial actions or face serious fimmcial consequences The EPA described the
contamination of the Woonasquatucket River and land on which Metro-Atlantic had never
operated but made only general allegations regarding the suspected cause During discovery it
was determined that Metro-Atlantic manufactured hexachlorophene for use in soap during a brief
period in approximately 1964-65 Dioxin a principal contaminant at the Site was a by-product
of this manufacturing process The EPA listed eighteen other chemicals found in high
concentrations on the Site which would likely require remediation The EPA also alleged that
there was a serious fire at the Site in 1972 discovery has disclosed eflier fir(s and explosions
This memorandum addresses new issues raised by the insurers and issues raised in
Emharts motion It reinforces the showing in Emharts prior memorandum that Rhode Island
law applies to the Liberty Mutual and North River polices As Emhart demonstrates it is the
successor to the policies issued to Crown Metro and USM and is consequently entitled to the
benefits ofthese policies Moreover the duties to defend and indemnify were triggered by
2
E-002002006012
occurrences at the Site during all applicable policy periods Further the pollution exclusions in
the INA Liberty Mutual and North River policies are inapplicable regardless of whether Rhode
Island law or the more restrictive law of Massachusetts Connecticut or New York applies
OneBeacon may not rewrite its policy to add a pollution exclusion In addition the EPAs claim
is for damages under the PRP letter and unilateral orders which require remediation of actual
contamination rather than merely threatened future contamination any rental property
exclusions are inapplicable because inter alia third-party property is contaminated Finally
Emhart shows that INA may not avoid its duty to defend due to Emharts having additional
irtsUers or due to Emharts retainin~ counsel wPen the insurers refused to defend
Regardless of the applicable law Emhart is entitled to summary judgment against INA
and Liberty Mutual The insurers motions raise material issues of fact I I PRELIMINARY ISSUES li
1shyA Rhode Island Law Applies ~ Emhart has shown that in a conflicts determination Rhode Island follows the modern
r-
i
interest weighing analysis rather than the outdated lex loci contractus approach in determining I I
applicable substantive law (see Em Mem at 18-23) Under this analysis the substantive law of
the location of the contaminated site applies to a single-site environmental coverage dispute ~ While Liberty Mutual and North River erroneously look to the old rule neither insurer cites any
decision in which Rhode Island considered but chose not to apply an interest analysis or where t a court following the interest analysis in a situation involving a single contaminated industrial
f
site declined to adopt the substantive law ofthe state in which the site was located ~ 1 The Interest-Weighing Approach Applies in Contract Actions I
I I
Emhart has shown that Rhode Island generally follows an interest-weighing approach i
i
adopted from the Restatement (Second) of Conflict ofLaws (Restatement) (Em Mem at 18shy
3
E-002002006013
I
I
19) Relying on dicta from Magnum Defense Inc v Harbour Group Ltd 248 F Supp 2d 64 I
69 (DRI 2003) Liberty Mutual erroneously argues that the choice of law determination
depends upon whether the claim is a tort claim or a contract claim (LM Mem at 16-17 20)
When a jurisdiction looks to interest analysis for choice of law it analyzes interests in tort cases
in a different way than in contract cases See Y Najarian v Natl Amusements Inc 768
A2d 1253 1255 (RI 2001) The nature of the case is relevant to which interests are considered
not whether interest analysis is to be utilized Magnum does not suggest that an interest analysis
cannot be used in a contract action
Rhode Island Supreme Court decisions provide a strong basis for concluding that Rhode
Islands use of an interest analysis is not limited to tort cases In Gordon v Clifford Metal Sales
Co 602 A2d 535 (RI 1992) a contract action concerning a secured transaction the trial court
relied upon both a choice-of-law provision in the Uniform Commercial Code and a second body
oflaw Section 6 of the Restatement 602 A2d at 537-39 The Rhode Island Supreme Court
discussed the two approaches in detail approving both Regarding the Restatement it said that
[t]he trial justice correctly concluded upon consideration of the aforementioned factors [in
Section 6] that Rhode Island law has the most appropriate relation to the transaction 602 A2d
at 539 In Gordon Rhode Islands reliance on interest analysis was applied in a contract case
Accordingly interest analysis is not confined to tort cases
Liberty Mutual also errs when it asserts that Gordon held that the Uniform Commercial
Code (UCC) choice-of-law provision was ultimately control~~g as to the rights of the
parties (LM Mem at 16) The Court stated that the UCC was controlling after it had
resolved the choice-of-law issue by determining that Rhode Island(s substantive law set forth in
4
E-002002006014
its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
5
E-002002006015
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
INTRODUCTION
Emhart Industries Inc (Emhart) seeks insurance coverage from Liberty Mutual
Insurance Company (Liberty Mutual) Insurance Company ofNorth America (INA)
OneBeacon America Insurance Company (OneBeacon) and North River Insurance Company
(North River) for claims by the Environmental Protection Agency (EPA) for remediation of
the Centredale Manor Superfund Site (Site) in North Providence Rhode Island The INA
policy was in effect from late 1968 into 1970 and the OneBeacon policy was excess to it during
most of that period The Liberty Mutual policies were in effect from 1971 through 1979 North
River wrote an excess policy for the 1984 calendar year The policies provide occurrence-based
property coverage The INA and Liberty Mutual policies also include a defense obligation (see
Emharts opening memorandum (Em Mem) at 12 13-14)
Emhart moved for summary judgment against Liberty Mutual and INA on the ground
that they were in breach of the duty to defend The charging documents including a PRP letter
and two unilateral orders demonstrate the reasonable possibility of coverage under the policies
the duty to defend thus exists See Flori v Allstate Ins Co 388 A2d 25 26 (RI 1978)
Emhart further demonstrated that under principles of Conanicut Marine Services Inc v Ins Co
ofN Am 511 A2d 967 (RI 1986) a breach of the duty to defend gives rise to the duty to middot
indemnify Liberty Mutual and INA opposed Emharts motion and seek summary judgment in
their favor on the duties to defend and indemnify OneBeacon and North River moved for
summary judgment on the duty to indemnify This memorandum replies to the insurers
Emharts predecessor Metro-Atlantic Inc used a portion of the Site for chemical
manufacturing Another portion of the Site was used by New England Container Company
(NBC) a barrel recycler unrelated to Emhart Metro-Atlantic operated on the Site from the
E-002002006011
1940s until approximately December 1968 when it was consolidated with Crown Chemical
Corporation to form Crown Metro Inc (Cro~ Metro) the insured under the INA and
OneBeacon policies USM Corporation (USM) the insured under the Liberty Mutual policies
acquired Crown Metro which was later liquidated into USM USM eventually merged into
Emhart the insured under the North River policy Crown Metro USM and Emhart never
conducted any operations at the Site By merger and acquisition Emhart has succeeded to the
rights of each of its predecessors under their respectiv~ policies (see Em Mem at 3-4)
Following a June 1999 request for information the EPA issued a PRP letter in February
2000 and a Unilateral Administrative Order in April2000 A second such Order followed in
March 2001 (see Em Mem at 4-9) Under these Orders Emhart was compelled to undertake
substantial remedial actions or face serious fimmcial consequences The EPA described the
contamination of the Woonasquatucket River and land on which Metro-Atlantic had never
operated but made only general allegations regarding the suspected cause During discovery it
was determined that Metro-Atlantic manufactured hexachlorophene for use in soap during a brief
period in approximately 1964-65 Dioxin a principal contaminant at the Site was a by-product
of this manufacturing process The EPA listed eighteen other chemicals found in high
concentrations on the Site which would likely require remediation The EPA also alleged that
there was a serious fire at the Site in 1972 discovery has disclosed eflier fir(s and explosions
This memorandum addresses new issues raised by the insurers and issues raised in
Emharts motion It reinforces the showing in Emharts prior memorandum that Rhode Island
law applies to the Liberty Mutual and North River polices As Emhart demonstrates it is the
successor to the policies issued to Crown Metro and USM and is consequently entitled to the
benefits ofthese policies Moreover the duties to defend and indemnify were triggered by
2
E-002002006012
occurrences at the Site during all applicable policy periods Further the pollution exclusions in
the INA Liberty Mutual and North River policies are inapplicable regardless of whether Rhode
Island law or the more restrictive law of Massachusetts Connecticut or New York applies
OneBeacon may not rewrite its policy to add a pollution exclusion In addition the EPAs claim
is for damages under the PRP letter and unilateral orders which require remediation of actual
contamination rather than merely threatened future contamination any rental property
exclusions are inapplicable because inter alia third-party property is contaminated Finally
Emhart shows that INA may not avoid its duty to defend due to Emharts having additional
irtsUers or due to Emharts retainin~ counsel wPen the insurers refused to defend
Regardless of the applicable law Emhart is entitled to summary judgment against INA
and Liberty Mutual The insurers motions raise material issues of fact I I PRELIMINARY ISSUES li
1shyA Rhode Island Law Applies ~ Emhart has shown that in a conflicts determination Rhode Island follows the modern
r-
i
interest weighing analysis rather than the outdated lex loci contractus approach in determining I I
applicable substantive law (see Em Mem at 18-23) Under this analysis the substantive law of
the location of the contaminated site applies to a single-site environmental coverage dispute ~ While Liberty Mutual and North River erroneously look to the old rule neither insurer cites any
decision in which Rhode Island considered but chose not to apply an interest analysis or where t a court following the interest analysis in a situation involving a single contaminated industrial
f
site declined to adopt the substantive law ofthe state in which the site was located ~ 1 The Interest-Weighing Approach Applies in Contract Actions I
I I
Emhart has shown that Rhode Island generally follows an interest-weighing approach i
i
adopted from the Restatement (Second) of Conflict ofLaws (Restatement) (Em Mem at 18shy
3
E-002002006013
I
I
19) Relying on dicta from Magnum Defense Inc v Harbour Group Ltd 248 F Supp 2d 64 I
69 (DRI 2003) Liberty Mutual erroneously argues that the choice of law determination
depends upon whether the claim is a tort claim or a contract claim (LM Mem at 16-17 20)
When a jurisdiction looks to interest analysis for choice of law it analyzes interests in tort cases
in a different way than in contract cases See Y Najarian v Natl Amusements Inc 768
A2d 1253 1255 (RI 2001) The nature of the case is relevant to which interests are considered
not whether interest analysis is to be utilized Magnum does not suggest that an interest analysis
cannot be used in a contract action
Rhode Island Supreme Court decisions provide a strong basis for concluding that Rhode
Islands use of an interest analysis is not limited to tort cases In Gordon v Clifford Metal Sales
Co 602 A2d 535 (RI 1992) a contract action concerning a secured transaction the trial court
relied upon both a choice-of-law provision in the Uniform Commercial Code and a second body
oflaw Section 6 of the Restatement 602 A2d at 537-39 The Rhode Island Supreme Court
discussed the two approaches in detail approving both Regarding the Restatement it said that
[t]he trial justice correctly concluded upon consideration of the aforementioned factors [in
Section 6] that Rhode Island law has the most appropriate relation to the transaction 602 A2d
at 539 In Gordon Rhode Islands reliance on interest analysis was applied in a contract case
Accordingly interest analysis is not confined to tort cases
Liberty Mutual also errs when it asserts that Gordon held that the Uniform Commercial
Code (UCC) choice-of-law provision was ultimately control~~g as to the rights of the
parties (LM Mem at 16) The Court stated that the UCC was controlling after it had
resolved the choice-of-law issue by determining that Rhode Island(s substantive law set forth in
4
E-002002006014
its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
5
E-002002006015
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
1940s until approximately December 1968 when it was consolidated with Crown Chemical
Corporation to form Crown Metro Inc (Cro~ Metro) the insured under the INA and
OneBeacon policies USM Corporation (USM) the insured under the Liberty Mutual policies
acquired Crown Metro which was later liquidated into USM USM eventually merged into
Emhart the insured under the North River policy Crown Metro USM and Emhart never
conducted any operations at the Site By merger and acquisition Emhart has succeeded to the
rights of each of its predecessors under their respectiv~ policies (see Em Mem at 3-4)
Following a June 1999 request for information the EPA issued a PRP letter in February
2000 and a Unilateral Administrative Order in April2000 A second such Order followed in
March 2001 (see Em Mem at 4-9) Under these Orders Emhart was compelled to undertake
substantial remedial actions or face serious fimmcial consequences The EPA described the
contamination of the Woonasquatucket River and land on which Metro-Atlantic had never
operated but made only general allegations regarding the suspected cause During discovery it
was determined that Metro-Atlantic manufactured hexachlorophene for use in soap during a brief
period in approximately 1964-65 Dioxin a principal contaminant at the Site was a by-product
of this manufacturing process The EPA listed eighteen other chemicals found in high
concentrations on the Site which would likely require remediation The EPA also alleged that
there was a serious fire at the Site in 1972 discovery has disclosed eflier fir(s and explosions
This memorandum addresses new issues raised by the insurers and issues raised in
Emharts motion It reinforces the showing in Emharts prior memorandum that Rhode Island
law applies to the Liberty Mutual and North River polices As Emhart demonstrates it is the
successor to the policies issued to Crown Metro and USM and is consequently entitled to the
benefits ofthese policies Moreover the duties to defend and indemnify were triggered by
2
E-002002006012
occurrences at the Site during all applicable policy periods Further the pollution exclusions in
the INA Liberty Mutual and North River policies are inapplicable regardless of whether Rhode
Island law or the more restrictive law of Massachusetts Connecticut or New York applies
OneBeacon may not rewrite its policy to add a pollution exclusion In addition the EPAs claim
is for damages under the PRP letter and unilateral orders which require remediation of actual
contamination rather than merely threatened future contamination any rental property
exclusions are inapplicable because inter alia third-party property is contaminated Finally
Emhart shows that INA may not avoid its duty to defend due to Emharts having additional
irtsUers or due to Emharts retainin~ counsel wPen the insurers refused to defend
Regardless of the applicable law Emhart is entitled to summary judgment against INA
and Liberty Mutual The insurers motions raise material issues of fact I I PRELIMINARY ISSUES li
1shyA Rhode Island Law Applies ~ Emhart has shown that in a conflicts determination Rhode Island follows the modern
r-
i
interest weighing analysis rather than the outdated lex loci contractus approach in determining I I
applicable substantive law (see Em Mem at 18-23) Under this analysis the substantive law of
the location of the contaminated site applies to a single-site environmental coverage dispute ~ While Liberty Mutual and North River erroneously look to the old rule neither insurer cites any
decision in which Rhode Island considered but chose not to apply an interest analysis or where t a court following the interest analysis in a situation involving a single contaminated industrial
f
site declined to adopt the substantive law ofthe state in which the site was located ~ 1 The Interest-Weighing Approach Applies in Contract Actions I
I I
Emhart has shown that Rhode Island generally follows an interest-weighing approach i
i
adopted from the Restatement (Second) of Conflict ofLaws (Restatement) (Em Mem at 18shy
3
E-002002006013
I
I
19) Relying on dicta from Magnum Defense Inc v Harbour Group Ltd 248 F Supp 2d 64 I
69 (DRI 2003) Liberty Mutual erroneously argues that the choice of law determination
depends upon whether the claim is a tort claim or a contract claim (LM Mem at 16-17 20)
When a jurisdiction looks to interest analysis for choice of law it analyzes interests in tort cases
in a different way than in contract cases See Y Najarian v Natl Amusements Inc 768
A2d 1253 1255 (RI 2001) The nature of the case is relevant to which interests are considered
not whether interest analysis is to be utilized Magnum does not suggest that an interest analysis
cannot be used in a contract action
Rhode Island Supreme Court decisions provide a strong basis for concluding that Rhode
Islands use of an interest analysis is not limited to tort cases In Gordon v Clifford Metal Sales
Co 602 A2d 535 (RI 1992) a contract action concerning a secured transaction the trial court
relied upon both a choice-of-law provision in the Uniform Commercial Code and a second body
oflaw Section 6 of the Restatement 602 A2d at 537-39 The Rhode Island Supreme Court
discussed the two approaches in detail approving both Regarding the Restatement it said that
[t]he trial justice correctly concluded upon consideration of the aforementioned factors [in
Section 6] that Rhode Island law has the most appropriate relation to the transaction 602 A2d
at 539 In Gordon Rhode Islands reliance on interest analysis was applied in a contract case
Accordingly interest analysis is not confined to tort cases
Liberty Mutual also errs when it asserts that Gordon held that the Uniform Commercial
Code (UCC) choice-of-law provision was ultimately control~~g as to the rights of the
parties (LM Mem at 16) The Court stated that the UCC was controlling after it had
resolved the choice-of-law issue by determining that Rhode Island(s substantive law set forth in
4
E-002002006014
its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
5
E-002002006015
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
occurrences at the Site during all applicable policy periods Further the pollution exclusions in
the INA Liberty Mutual and North River policies are inapplicable regardless of whether Rhode
Island law or the more restrictive law of Massachusetts Connecticut or New York applies
OneBeacon may not rewrite its policy to add a pollution exclusion In addition the EPAs claim
is for damages under the PRP letter and unilateral orders which require remediation of actual
contamination rather than merely threatened future contamination any rental property
exclusions are inapplicable because inter alia third-party property is contaminated Finally
Emhart shows that INA may not avoid its duty to defend due to Emharts having additional
irtsUers or due to Emharts retainin~ counsel wPen the insurers refused to defend
Regardless of the applicable law Emhart is entitled to summary judgment against INA
and Liberty Mutual The insurers motions raise material issues of fact I I PRELIMINARY ISSUES li
1shyA Rhode Island Law Applies ~ Emhart has shown that in a conflicts determination Rhode Island follows the modern
r-
i
interest weighing analysis rather than the outdated lex loci contractus approach in determining I I
applicable substantive law (see Em Mem at 18-23) Under this analysis the substantive law of
the location of the contaminated site applies to a single-site environmental coverage dispute ~ While Liberty Mutual and North River erroneously look to the old rule neither insurer cites any
decision in which Rhode Island considered but chose not to apply an interest analysis or where t a court following the interest analysis in a situation involving a single contaminated industrial
f
site declined to adopt the substantive law ofthe state in which the site was located ~ 1 The Interest-Weighing Approach Applies in Contract Actions I
I I
Emhart has shown that Rhode Island generally follows an interest-weighing approach i
i
adopted from the Restatement (Second) of Conflict ofLaws (Restatement) (Em Mem at 18shy
3
E-002002006013
I
I
19) Relying on dicta from Magnum Defense Inc v Harbour Group Ltd 248 F Supp 2d 64 I
69 (DRI 2003) Liberty Mutual erroneously argues that the choice of law determination
depends upon whether the claim is a tort claim or a contract claim (LM Mem at 16-17 20)
When a jurisdiction looks to interest analysis for choice of law it analyzes interests in tort cases
in a different way than in contract cases See Y Najarian v Natl Amusements Inc 768
A2d 1253 1255 (RI 2001) The nature of the case is relevant to which interests are considered
not whether interest analysis is to be utilized Magnum does not suggest that an interest analysis
cannot be used in a contract action
Rhode Island Supreme Court decisions provide a strong basis for concluding that Rhode
Islands use of an interest analysis is not limited to tort cases In Gordon v Clifford Metal Sales
Co 602 A2d 535 (RI 1992) a contract action concerning a secured transaction the trial court
relied upon both a choice-of-law provision in the Uniform Commercial Code and a second body
oflaw Section 6 of the Restatement 602 A2d at 537-39 The Rhode Island Supreme Court
discussed the two approaches in detail approving both Regarding the Restatement it said that
[t]he trial justice correctly concluded upon consideration of the aforementioned factors [in
Section 6] that Rhode Island law has the most appropriate relation to the transaction 602 A2d
at 539 In Gordon Rhode Islands reliance on interest analysis was applied in a contract case
Accordingly interest analysis is not confined to tort cases
Liberty Mutual also errs when it asserts that Gordon held that the Uniform Commercial
Code (UCC) choice-of-law provision was ultimately control~~g as to the rights of the
parties (LM Mem at 16) The Court stated that the UCC was controlling after it had
resolved the choice-of-law issue by determining that Rhode Island(s substantive law set forth in
4
E-002002006014
its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
5
E-002002006015
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
I
I
19) Relying on dicta from Magnum Defense Inc v Harbour Group Ltd 248 F Supp 2d 64 I
69 (DRI 2003) Liberty Mutual erroneously argues that the choice of law determination
depends upon whether the claim is a tort claim or a contract claim (LM Mem at 16-17 20)
When a jurisdiction looks to interest analysis for choice of law it analyzes interests in tort cases
in a different way than in contract cases See Y Najarian v Natl Amusements Inc 768
A2d 1253 1255 (RI 2001) The nature of the case is relevant to which interests are considered
not whether interest analysis is to be utilized Magnum does not suggest that an interest analysis
cannot be used in a contract action
Rhode Island Supreme Court decisions provide a strong basis for concluding that Rhode
Islands use of an interest analysis is not limited to tort cases In Gordon v Clifford Metal Sales
Co 602 A2d 535 (RI 1992) a contract action concerning a secured transaction the trial court
relied upon both a choice-of-law provision in the Uniform Commercial Code and a second body
oflaw Section 6 of the Restatement 602 A2d at 537-39 The Rhode Island Supreme Court
discussed the two approaches in detail approving both Regarding the Restatement it said that
[t]he trial justice correctly concluded upon consideration of the aforementioned factors [in
Section 6] that Rhode Island law has the most appropriate relation to the transaction 602 A2d
at 539 In Gordon Rhode Islands reliance on interest analysis was applied in a contract case
Accordingly interest analysis is not confined to tort cases
Liberty Mutual also errs when it asserts that Gordon held that the Uniform Commercial
Code (UCC) choice-of-law provision was ultimately control~~g as to the rights of the
parties (LM Mem at 16) The Court stated that the UCC was controlling after it had
resolved the choice-of-law issue by determining that Rhode Island(s substantive law set forth in
4
E-002002006014
its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
5
E-002002006015
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
its version ofihe UCC applied The word controlling referred to the substantive provisions of
the UCC not to its choice-of-law provisions 602 A2d at 539-540
There is no basis for Liberty Mutual to distinguish Gordon on the ground that it was not
a common law contract action Rhode Island choice-of-law principles apply equally to
common law and statutory actions In Brown v Church of the Holy Name of Jesus 252 A2d
176 178 (RI 1969) the same interest analysis applicable to a common law action was applied
to a wrongful death statute In Woodward v Stewart 243 A2d 917 922 (Ri 1968) in which
Rhode Island frrstjettisoned lex loci delicti in favor of the modem interest-weighing approach it
specifically rejected the argument that would have us limit the application of this theory to
those cases wherein the rights being litigated are based on the common law for their existence
Liberty Mutual has offered no principled reason why Rhode Island would take a different choice-
of-law approach to a priority dispute under the UCC than to a contract action at common law
In 1968 Rhode Island decided [it] would not necessarily follow the lex loci delicti
rule in tort conflicts cases See Brown 252 A2d at 178 Three years later in A C Beals Co v
Rhode Island Hosp 292 A2d 865 871 amp n5 (RI 1971) it looked to both the place of
contracting and an interest analysis Finding the result under each theory the same the Court
noted that it need not decide whether to extend interest analysis to contract cases However by
2001 after it had decided Gordon in 1992 it dropped this limitation This Court has adopted
the interest-weighing approach in deciding choice oflaw questions Najarian 768 A2d at
1255 After quoting from Section 6 ofth~ Restatement which applies to all choice-of-law
determinations it explained that [i]n applying these principles in tort cases middotthe relevant factors
were those in Section 145(2) 768 A2d at 1255 (emphasis supplied) This dicta strongly
5
E-002002006015
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
suggests that other Restatement sections provide other factors to be followed in Rhode Island
which are relevant in other types of disputes
Zarrella v Minnesota Mut Life Ins Co 824 A2d 1249 (RI 2003) is of no help to
defendants neither the lower court nor the Supreme Court was asked to employ an interest
analysis The question on appeal was whether the trial court erred in refusing to certify a class
action suit against a life insurer for improper calculation ofpolicy surrender value The trial
court found that the agents who sold the policies were considered independent contractors and
do not use canned scripts It also concluded there were individual questions of reliance
These findings furnished sufficient support to deny class certification regardless of the applicable
substantive law While the trial court stated that the applicable law would be that of the
jurisdiction where each contract was executed neither party contested this approach Rather
they focused upon whether the laws of the various jurisdictions permitted class certification 824
A2d at 1264-65 In affirming the Supreme Court said only that the hearing justice carefully
~considered all the evidence to class certification and concluded on the basis of that evidence I
lthat plaintiff was unable to demonstrate that common questions of fact or law predominated over
l11
questions unique to individual class members Id at 1265 It did not approve any particular
aspect of the analysis and did not pull back from its broad adoption of the interest approach shy
The ambiguity in Rhode Island choice-of-law decisions noted by the First Circuit see r Crellin Technologies Inc v Eguipmentlease Corp 18 F3d 1 5-6 (1st Cir 1994) may not be ~ due to judicial reluctance to engage in interest-weighing but to the failure oflitigants to argue it
~ Union Sav Bank v DeMarco 254 A2d 81 (RI 1969) was likely decided by the trial court and r briefed in the Rhode Island Supreme Court before Rhode Island adopted an interest analysis for
I i
6
E-002002006016
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
tort cases 1 While Union looked to the place of contracting to determine that a bank was not
illegally doing business in Rhode Island it relied upon a Restatement draft to support its
determinatio11 th~t mailed loan ~epayments from Rhode Island residents should not affect its
decision 254 A2d at 83 Baker v Hanover Ins Co 568 A2d 1023 1025 (RI 1990) decided
two years before Gordon contains no suggestion that an interest-weighing argument was made2
As discussed at Em Mem 19-22 this Court has recognized the shift in Rhode Island law
and employed an interest analysis in contract cases In Hartford Cas Ins Co v AampM
Associates Ltd 200 F Supp 2d 84 87 (DRI 2002) this Court applied an interest analysis to
an insurance coverage dispute citing Najarian In Nortek Inc v Libertv Mut Ins Co 858 F
Supp 1231 1235 amp n 4 (DRI 1994) it did the same citing Gordon See also Marshall
Contractors Inc v Peerless Ins Co 827 F Supp 91 94 (DRI 1993) (performance bond) A
decade earlier iri Montaup Electric Co v Ohio Brass Com 561 F Supp 740744 (DRI
1983) this Court looked to the Restatement in determining issues relating to both a contract
claim for breach of warranty and a tort claim for negligent design Bartholomew v Ins Co of
N Am 502 F Supp 246250 (DRI 1980) upon which Liberty Mutual relies predates these
cases as well as Gordon and Najarian and as in Baker the analysis suggests that neither party
Union was decided on May 28 1969 Brown was decided on April 7 1969 The lower court decision in Brown was prior to Woodward v Stewart 243 A2d 917 (RI 1968) where the new rule was adopted See Brown 252 A2d at 178
Liberty Mutual and North River also cite Ins Co ofN Am v Kayser-Roth Corp 1999 WL 813661 at 30 (RI Super Ct July 29 1999) where the insurer raised the defense of known-loss under New York law In a discussion remarkably devoid of citation to case law of a particular jurisdiction the argument was rejected on its merits Choice-of-law was briefly discussed but not decided in footnote 11 The court cited a 1937lex loci contractus decision of the Rhode Island Supreme Court under which New York law would be applied but went on to show that the known-loss doctrine in Rhode Island was consistent with that in New York Thus it was unnecessary to reach the choice-of-law issue Moreover there is no indication that the choice-of-law issue was contested or that any party relied upon the Restatement
7
E-002002006017
2
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
advocated an interest analysis3 When interest analysis is discussed in cases cited by the
insurers either it is utilized or no firm choice-of-law decision is made4
The need for federal courts to discern shifts in a states choice-of-law jurisprudence is not
uncommon Massachusetts like many other states moved to an interest analysis in tort cas~s
before explicitly taking the same step in contract claims Using an interest analysis in Eagle-
Picher Indus Inc v Libertv Mut Ins Co 829 F2d 227 248 (1st Cir 1987) an insurance case
the First Circuit cited dicta in a decision by Massachusetts highest court although the application
of the Restatement to contract cases had not been decided The Third Circuit faced the same
middotproblem in Melville v Am Home Assurance Co 584 F2d 1306 1312-13 (3d Cir 1978) The
Pennsylvania Supreme Court had adopted the Restatement in tort cases and applied it in a case
involving child relinquishment forms (which the Third Circuit viewed as a kind of contract)
without indicating that its ruling was limited to a familial context The Eleventh Circuit
rejected application of the antiquated lex loci contractus rule under Florida law to real property
insurance issues relying upon Floridas adoption ofan interest analysis for tort cases and noting
that when Floridas highest court retained the old rule for automobile insurance cases it
specifically limited its holding to automobile insurance Shapiro v Associated Intl Ins 899
F2d 1116 1119-20 (11th Cir 1990) Rhode Island law after Gordon and Najarian is at least
comparable to the law of Massachusetts Pennsylvania and Florida at the time the First Third
3 Liberty Mutual cites dicta in Michaud v Merrimack Mut Fire Ins Co 1994 WL 774683 (DRI) where the insured issuing insurance agency place of contracting and place of injury all were in Rhode Island While there was a brief reference to the place of contracting choice-of-law was not at issue in the case
4 See Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) SW Indus Inc v Aetna Cas amp Sur Co 653 F Supp 631638-39 (DRI 1987) Gen Accident Ins Co v Budget Rent A Car System 1999 WL 615737 (RI Super Ct Aug 2 1999) Ins Co ofN Am v Kayser-Roth Com 1999 WL 813661 at 30 (RI Super Ct July29 1999)
8
E-002002006018
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
and Eleventh Circuits looked to the Restatement in contract actions As this Court has already
recognized there is ample basis in Rhode Island law for the same determination to be made here (
2 Under The Interest-Weighing Approach Rhode Island Law Applies
Where as here a coverage suit involves one site or sometimes a small number of such
sites the overwhe~ing authority is that under the interest analysis of the Restatement the law
of the jurisdiction where the site is located will be applied5 Liberty Mutuals argument for a
contrary result ignores the critical difference between site-centered environmental coverage
c~ases such as this case and cases involving coverage of multiple sites in many jurisdictions
Aetna Cas amp Sur Co v Dow Chern Co 883 F Supp 1101 (ED Mich 1995) (AetnaDow
I) a case cited by Liberty Mutual emphasized this crucial distinction As it explained
[T]here are two opposing axes of possible uniformity and it is impossible to line up along both of them at the same time One axis is uniform nationwide interpretation of a single policys language The opposing axis is uniform interpretation that is site-specific ~
~883 F Supp at 1108 quoting Johnson Matthey Inc v Pennsylvania Mfrs Assoc Ins Co 593 II I j
A2d 367 372 (NJ App Div 1991) The court then rejected a site-specific approach saying it
would result in litigation chaos where sites were located in 48 different jurisdictions
The Massachusetts litigation between Emharts parent Black amp Decker and Liberty
Mutual thus is pQlicy-centered rather than site-centered The claims are under policies issued by
Liberty Mutual to five different insureds covering sites in 17 states A separate choice-of-law
Cases include Mapco Alaska Petroleum v Cent Natl Ins Co of Omaha 795 F Supp 941 944 (D Alaska 1991) Chesapeake Util Corn v Am Home Assurance Co 704 F Supp 551556-57 (D Del 1989) A Johnson amp Co v Aetna Cas amp Sur Co 741 F Supp 298299-302 (D Mass 1990) Curran GQlmosit~ Inc v Libertv Mut Ins Co 874 F Supp 261 264 (WD Mo 1994) Montana Refining Co v Natl Union Fire Ins Co 918 F Supp 1395 1397 (D Nev 1996) Gilbert Spruance Co v Pennsylvania Mfr Assn InsmiddotCo 629 A2d 885 890-91 893 (NJ 1993) Morton Intl v~ Aetna Cas amp Sur Co 666 NE2d 1163 1167-68 (Ohio Ct App 1995) Canron Inc v Fed Ins Co 918 P2d 937 944-45 (Wash Ct App 1996) and Joy Technologies Inc v Libertv Mut Ins Co 421 SE2d 493 496-97 (WVa 1992)
9
E-002002006019
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
analysis was conducted for each set of policies Liberty Mut Ins Co v Black amp Decker Corp
CA No 96-10804-DPW (D Mass May 17 2002) at52 (LibertyBlack amp Decker I) The
court followed Millipore Corp v Travelers Indem Co 115 F3d 21 30 (1st Cir 1997) which
held that a separate choice of law analysis applied to the insurance policies issued to each insured
although one insured was later acquired by the other
As discussed at Em Mem 19-21 Section 193 of the Restatement looks to the location of
the ilsured risk Comment (f) states that where multiple risk policies insure against risks
located in several states courts would be inclined to treat the policy as if it were separate
policies each insuring an individual risk Liberty Mutual does not cite a single case with facts
comparable to those of the case at bar in which a court employing an interest analysis rejected
the law of the site of the contamination in favor of the law of another jurisdiction
AetnaDow I cited by Liberty Mutual involved a large number of sites and the courts
construction of Comment (f) is admittedly and uncommonly narrow 6 In another case cited by
Liberty Mutual Sandefer Oil amp Gas Inc v AIG Oil Rig ofTexas Inc 846 F2d 319 (5th Cir
1988) where the court did not mention Comment (f) there were six claims in three different
states These cases contrast with Edo Corp v Newark Ins Co 1997 WL 76575 at 5 (D
Conn 1997) where the court looking to Section 193 and Comment (f) declined to apply
decisions which involved multiple-risk and multiple contamination sites to a multiple-risk
policiessingle-site scenario Courts specifically looked to Comment (f) in applying the law of
the sites at issue in Reichhold 703 A2d at 1139-1140 (discussed in Em Mem at 20-21)
The AetnaDow I court complained without explanation that a broad construction of Comment (f) did not take othercomments into account See 883 F Supp at 1107-08 The comments to Section 193 when read together are open to the interpretation that multistate policies covering vehicles in multiple locations do not insure a risk with a principal location and Comment (f) would not apply In contrast under Comment (f) real property structures or permanent business locations all insured under the same multistate policy would be treated as if separate policies had been issued It is unclear why the court saw a conflict among the various comments under the broader interpretation of Comment (f) adopted by other courts
10
E-002002006020
6
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
Chesapeake Util Corp 704 F Supp at 556-57 and Curran Composites 874 F Supp at 2647
None of these courts limited Comment (f) to situations where special statutorily prescribed forms
must be utilized as Liberty Mutual seeks to do The Restatement points unmistakably toward
application ofRhode Island law to the Liberty Mutual policies in this single-site casemiddot
Liberty Mutual has no complaint if these policies are governed by Rhode Island law It
issued multistate policies covering activities and facilities in numerous states Liberty Mutual
was on notice that its coverage was not limited to Massachusetts and that where injury occurred
in other jurisdictions the law of other states was likely to apply Liberty Mutual issued policies
to USM specifically covering Crown Metro in Rhode Island as well as USM facilities in at least
twenty other states(~ P0007-27) USM initially was located in Massachusetts but later
policies were issued to USM in Hartford co Emhart Corp~ after its headquarters were
transferred to Connecticut (P0448) Emhart the successor to USMs rights under these policies
is now headquartered in Maryland (A1558 ~ 1) Liberty Mutual has handled the claim from ~ New Hampshire (A0217)
Here the sole site in issue is in Rhode Island Neither the pending Massachusetts case I nor Millipore addressed which law to choose in a single-site case where the insured and the site
are in different jurisdictions While Liberty Mutual suggests that this Court adopt Massachusetts
law because its USM policies are construed under Massachusetts law in Liberty BlackampDecker
it offers no authority for that proposition and as discussed infra makes arguments rejected by
7 Two cases cited by Liberty Mutual both decided under Pennsylvania choice-of-law principles United Brass Works Inc v Am Guar amp Liab Ins Co 819 F Supp 465 (WO Pa 1992) and Gould Inc v Continental Cas Co 822 F Supp 1172 (ED Pa 1993) involved waste ofthe insured delivered to disposal sites Comment (f) is not as clearly applicable to such sites which themselves are not insured sites Liberty Mutual also relies upon Hartford Cas Ins Co v AampM Associates Ltd 200 F Supp 2d 84 (DRI 2002) a case involving payment ofattorneys fees by an insurer Unlike an environmental coverage case the issues had no connection to the underlying litigation and the principal location of the insured risk in Hartford was never at issue See Em Mem at 22
11
E-002002006021
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
that court Other litigation between related parties is not a factor in a choice oflaw analysis
Liberty Mutual also forgets that in the Massachusetts case the two sites governed by USM
policies that involved the highest remediation costs were located in Massachusetts
North Rivers choice oflaw analysis mistakenly relies on the old lex loci contractus
approach It ignores the existence of the other policiesmiddot at issue and would have this Court apply
different legal principles to its policies than to other policies There are compelling reasons why
the issues as to all insurers should be resolved under the law of a single jurisdiction Applying
different rules to differen~ policies creates the risk of conflicting results The policies North
River issued to Emhart like the Liberty Mutual policies issued to USM were multistate policies
with amendatory endorsements for seven states (P0770-76) North River knew that it was
insuring a risk with multiple locations and should not be surprised to find its multistate policies i
I
governed by the law of a state other than New York or Connecticut This is not a situation where
an insurer wrote a policy for a localized business Although North River claims to be centered in ~ New York in a Restatement analysis the home state of the insurer has little interest in a r coverage dispute See M Eagle-Picher 829 F2d at 248 Emhart logically selected Rhode
Island the location of the contaminated Site as the forum Rhode Island law should apply
B Emhart Succeeded To The Rights Of The Insureds
Several insurers question whether Emhart is able to prove that it is a successor in interest
under their policies They would have the rights conferred by their policies disappear because ~
the insured was acquired by another corporation The law is to the contrary The undisputed
corporate history and the clear law on successor corporations demonstrate that as a matter of
law Emhart succeeded to the policies issued to its predecessors
By Agreement of Consolidation dated November 29 1968 Metro-Atlantic Inc and
Crown Chemical Corporation consolidated to form Crown-Metro Inc (Crown Metro) a
12
E-002002006022
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
Rhode Island corporation (A5000-19) Crown Metro never conducted any business operations at
2072 Smith Street or on any other part of the Site (A0340 LM SOMF ~ 21 CIC SOMF ~ 91 ) )
In 1969 USM Corporation (USM) purchased Crown Metro While the Purchase and Sale
Agreement has not been located there is unrebutted evidence that USM purchased Crownshy
Metros stock In March 1969 the USM Board of Directors authorized management to enter
into an agreement for the purchase by this Corporation of the stock of Crown Metro Inc for a
cash price of $5500000 with contingent payments of up to $3500000 to be made based on the
profits earned by Crown-Metro Inc (A5021-22) USM announced in July 1969 that it has
signed an agreement to purchase Crown Metro Inc for nine million dollars in cash
(A5023) USMs quarterly report similarly reflected that such a purchase was to take place
(A5027)
The purchase of Crown Metro was completed in September 1969 A USM listing of its
mergers and acquisitions lists August 29 1969 as the effective date of the Crown Metro
transaction and lists the form of transaction as Purchase of All Stock (A5033) 8 Thereafter
USM operated Crown-Metro as a wholly-owned subsidiary See A5035 (USM Board minutes
referring to USM s ownership of all of the capital stock of Crown Metro Inc) A503 8 (USM
Board minutes referring to Crown Metro as a wholly-owned subsidiary ofUSM) A5040
(USM Form 10-K listing Crown-Metro Inc as a 100 owned subsidiary ofUSM included in
USMs consolidated financial statements)
In 1976 Crown-Metro changed its name to Bostik South Inc (A5041-44) Effective
December 31 1977 Bostik South Inc was liquidated into its parent corporation USM and
USM acquired all assets (A5045-47 A5048-49 A5050) Bostik South Inc was then dissolved
The affidavit of Emharts former corporate counsel also states that USM purchased the stock of Crown Metro although the affidavit indicates that this purchase occurred in 1970 (A0327)
13
E-002002006023
8
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
pursuant to RI Gen Lawssect 7-11-85 (A5051-53) and the business it had previously conducted
was continued by the Bostik South division ofUSM (A5054-55)
As this corporate history shows Crown Metro had a separate corporate existence until its
liquidation in 1978 and was a named insured in the Liberty Mutual policies (see Em Mem at 16
n11) In its liquidation Bostik South transferred to USM [a]ll of the properties book accounts
and other assets ofBostik-South Inc including its rights to any insurance policies issued to
Bostik South or Crown Metro (A5048) Such a transfer would have occurred even without the
statement about the transfer because the property of a dissolved business corporation ultimately
passes to its -stockholders as the actual owners of such property Friendly Home Inc v
Shareholders and Creditors ofRoyal Homestead Land Co 477 A2d 934 938 (RI 1984)
USM Bostik Souths sole stockholder at the time of the dissolution succeeded to all ofBostik
Souths assets including its then-existing rights in the INA OneBeacon and Liberty Mutual
policies Emhart later succeeded to those rights as well as USM s own rights in the Liberty
Mutual policies by means ofUStvfs merger into Emhart (see Em Mem at 3-4)
This situation is indistinguishable from that in National American Insurance Co v
Jamison Agency Inc 501 F2d 1125 (8th Cir 1974) There the named insured was dissolved
under state law and all of its assets including the policy were distributed to its sole shareholder
After the shareholder made a claim the trial court concluded that the policy was not in force
because the insurer had not been informed of or consented to the assignment The court of
appeals reversed holding that provisions in the policy prohibiting assignments would not be
enforced in factual settings in which as here they work an unexpected forfeiture of insurance
coverage and when the assignment involves no increase in risk to the insurer I d at 1128
14
E-002002006024
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
The same rationale applies when the surviving corporation in a merger succeeded to
rights under insurance policies issued to the merged corporation prior to the merger 9 While
Bostik South was not merged into USM the rationale is the same the surviving corporate entity
simply stands in the same position as that occupied by the insured corporation before the merger
or dissolution Brunswick 509 F Supp at 753 (court would not deprive the surviving
corporation of the protection bargained and paid for by the merged corporation) In the cases
cited in the preceding footnote the presence of a no-assignment clause in the policy did not
bar the successor from asserting its predecessors rights under the policy Imperial Enterorises
535 F2d at 293 (no-assignment clause should not be applied ritualistically and mechanically to
forfeit coverage in these circumstances) National American 501 F2d at 1130 (courts will not
slavishly follow the rule against assignments without consent when the reason for that rule degt_es
not exist in the particular situation) Knoll Pharmaceutical 167 F Supp 2d at 1010n7
(provision requiring insurers consentto transfer rights and duties under a policy does not affect
transfer through a statutory merger) Paxton amp Vierling 497 F Supp at 581 (insurer cannot
realistically contend that it is prejudiced in the way of risk exposure by the Courts refusal to
enforce the policys anti-assignment language) Emharts liability arises out ofconduct of
Metro Atlantic andor Crown Metro at the Site10 Emhart is entitled to assert Crown Metros
rights to the insurance policies issued to Crown Metro in order to cover these liabilities
9 ~~Imperial Enterprises Inc v Firemans Fund Insurance Co 535 F2d 287292-293 (5th Cir 1976) Knoll Pharmaceutical Co v Automobile Insurance Co of Hartford 167 F Supp 2d 1004 1010shy1011 (ND Il12001) Paxton amp Vierling Steel Co v Great American Insurance Co 497 F Supp 573 581-582 (D Neb 1980) Brunswick Com v St Paul Fire amp Marine Insurance Co 509 F Supp 750 753 i
j(ED Pa 1981)
10 The INA and Liberty Mutual policies also provide coverage to USM as the sole shareholder of Crown Metro (and later Bostik South) See P0583 (insured under INA policy includes any stockholder of the Named Insured while acting on behalf of such Named Insured) P0062 (insured under Liberty Mutual I policy includes any corporate named insured and any stockholder thereof while acting within the scope
ofhis duties as such) P0512 (saine) Thus to the extent that the EPA imposed liability on Emhart due to USMs status as the sole shareholder of Crown Metro coverage is provided by these policies
15
E-002002006025
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
The insurers have raised no facts to dispute the corporate history They cite no law
regarding the iegal consequences of the corporate history They rely on Emharts defense in the
underlying proceeding that the EPA cannot prove that Emhart succeeded to the 1iabilities of
Crown Metro a defense asserted solely on the basis of the missing purchase and sale agreement
(A1541 at 464-20) Emharts arguments were focused on whether Emhart could be held liable
under CERCLA as the successor to the liabilities of Crown Metro or had a CERCLA sufficient
cause defense (ill) not whether Emhart has succeeded to Crown Metros assets (such as
insurance policies) As Emhart argued to the EPA there were equitable reasons not to hold I
Emhart liable as a successor to Crown Metro It is undisputed that Crown Metro never operated
at the Centredale Site Emharts argument has been unsuccessful (A1542 at 4712-495) and no
facts asserted by Emhart in the EPA proceeding support a finding that Emhart did not succeed to
the rights in the insurance policie~ An insureds denial of liability in the underlying proceeding
is not a basis for depriving it of insurance coverage Aetna Cas amp Sur Co vJ Kelly 889 F
Supp 535 541 (RI 1995) (it violate[s] one of the most fundamental duties for an insurer to
force resolution of an issue in a coverage action in such a way as to increase the likelihood the
insured will be held liable in the underlying proceeding) As a matter of law Emhart is entitled
to the benefits of the insurance policies at issue
IT OCCURRENCES TRIGGERING EACH POLICY
A Background To Occurrence Trigger And Pollution Exclusion
1 The Relevant State Of Environmental Knowledge
The issues of occurrence trigger and the pollution exclusion must be analyzed in the E
context of the limited state of environmental knowledge when Metro-Atlantic operated at a
portion of the Site Those activities ceased by December 1968 As explained by Michael
Bonchonsky an expert regarding environmental knowledge as oflate 1968 environmental
16
E-002002006026
I
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
concerns and issues were at a very undeveloped stage (A3018) and were focused on sewage
oxygen demanding materials solids odors and other nuisances see generally A5564-82)
The concept of hazardous waste was unknown Even Liberty Mutuals expert witness Franklin
Woodard admitted three times during his deposition that he cant think of any reference before
1970 that says anything would cause environmental harm (A1352-53 at 12214-1269) The
Calabrese report states that 1969 was the date by which disposal of dioxin on soil or water was
inappropriate (A5058)
Prior to 1970 attention was directed to surface waters and mostly concerned visible
acute impacts from discharges such as fish kill and color (A3022) [W]aterways were used in
many cases to dilute industrial waste waters so that concentrations of substances would be
reduced and the immediate impact mitigated In view of this state of knowledge the d
loccasional discharge ofwaste waters to the river by Metro-Atlantic would have been a common
and acceptable practice for industrial manufacturing sites during the relevant period (A3027- a= fshy
30) After the 1972 enactment of the Federal Water Pollution Act concerns about effluent levels
of discharges into surface waters first arose (A3029) Mr Bonchonskys expert opinion about II the state of environmental knowledge is confirmed by fact testimony that the employees did not
believe they were causing any environmental harm and that numerous other companies engaged
in comparable (or by todays standards more egregious) disposal practices~ A1189 at 6822shy
6916 Al238 at 439-22 A1210 at 4319-445 A1303-04 at 598-6212)
Similarly throughout industry the disposal of materials on the ground was quite common
through the 1960s and eventhe 1970s and 1980s (A3023-26 see also A1357-58 at 14412shy
14519) Mr Bonchonsky explained that use oflandfor disposal of industrial waste was
common and it was regarded as an accepted practice that was generally not harmful to the
17
E-002002006027
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
environment during the period of operations at Metro-Atlantic (A3023) Dr Woodard testified
to the same effect (A1358 at 14511-17) In short Metro-Atlantics waste handling and disposal
practices were in line with those followed by American industry in the pre-EPA era
2 The Manufacture Of Hexachlorophene By Metro-Atlantic
Trichlorophenol was used at the Site in th~ manufacture ofhexachlorophene an
ingredient in an anti-bacterial soap pHisoHex (A0397 at 1714-18 A0403 at 4018-25) Metro- I
Atlantic sold the hexachlorophene to the manufacturer of pHisoHex and the hexachlorophene I
met the standards of purity established by the manufacturer (A0404 at 449-12 454-6) The I testimony of Thomas Cleary who established the process for purifying hexachlorophene shows ~ I
that the process occurred during fewer than twelve months in 1964 and 1965 (A0405-06 at
4915-5010 5322-25) There is no evidence that Metro-Atlantic had any knowledge that dioxin
existed much less that it was an impurity in trichlorophenol Even Mr Cleary was unaware of
dioxin and believed that nobody knew it existed at that time (A0400 at 2822-24) In 1964-65
there were some scientific periodicals that referred to dioxin and there is some evidence that
manufacturers of trichlorophenol knew of dioxin albeit not that it could have an environmental
impact (A5068-70) However there is no evidence that Metro-Atlantic received any of the
publications in medical journals (some in foreign languages) that referred to dioxin being present
in trichlorophenol (A5307 at 8414-23 A5321-22 at 14023-14422 A5249-50 at 3124-3139)
Manufacturers of trichlorophenol who were aware of dioxin as an impurity continued to
manufacture and sell trichlorophenol although they had experienced incidents in which exposure
to large quantities oftrichlorophenol caused chloracne (A5069-70 A3034)
3 Later Knowledge Regarding Hexachlorophene And Dioxin
From 1965-1970 scientific output concerning dioxin increased (A3133-34) The first
concern that dioxin could cause environmental problems did not arise until the 1970s after large
18
E-002002006028
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
quantities ofdioxin-containing still bottoms had been poured on roads near Times Beach
Missouri and an explosion in Seveso Italy (A5093-97 at 5317-715 A3030-31) I ~ r
Metro Atlantic did not dump or bury wastes from the hexachlorophene manufacture
~ (known as still bottoms) Dr J Ronald Hass an expert on dioxin explains that laboratory
I
analysis of the dioxin found at the Site is inconsistent with the hypothesis ofdeliberate disposal i
of waste containing dioxin but is consistent with the dioxin resulting from spills or leaks I
l i
(A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20) During hexachlorophene
manufacture trichloropheno1 was treated with activated carbon resulting in dioxin being tightly
~ bound to the carbon If sludge or residue containing dioxin had been dumped or buried carbon
would have affected the recovery of the labeled dioxin that had been addedas internal standards
prior to the analyses In fact recovery of internal standards was normal thus indicating that
carbon was not present The absence of carbon indicates that the dioxin was introduced to the
Site by spills or leaks before the trichloiophenol was bound to carbon in the manufacturing
process Such spills or leaks could have occurred when the trichlorophenol was brought onto the
Site by tankers or when it was piped to the building wnere hexachlorophene was manufactured
(A5216-17 at 18919~19016)
In the late 1990s elevated levels of dioxin (in the range of 1Os-1 OOs parts per billion)
were found at the portion of the Site used by Metro-Atlantic and elsewhere (A0454) Dioxins
attach to soils and sediments and are transported with the soil and sediment through erosion
scouring (erosion of riverbanks and river bottoms) flood events and the like and are re-deposited
downstream (A0457-59 A-5236 at 2582-17) This transport mechanism makes them relatively
immobile In view of the limited mobility of dioxins and the cessation of manufacturing
19
E-002002006029
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
activities by Metro-Atlantic the levels of dioxin that existed when Metro-Atlantic left the Site in
1968 were at least as high as that recently detected on the Site (A0458-59)
Dr Hass explained that dioxin in the soil could have been discovered at least as early as
the December 1 1968 and April 1969 inceptions of the INA and OneBeacon policies This
could have been accomplished using the relatively inexpensive and low-tech rabbit ear test
bioassay [which] was known in the trichlorophenol industry by the mid 1960s (A3190
A3137) That method applies suspected agents to a rabbits ear to monitor acne-like changes
Using that method researchers and manufacturers had identified the presence of dioxin in
trichlorophenol (A3137) The concentrations of dioxin later found at the Site also were
detectable using the relatively inexpensive and readily available gas chromatograph equipped
with an electron capture detector then available (A3190 A3138) Researchers and the Food amp
Drug Administration used those methods to find and characterize dioxin (A3137-38) Dr Hass
statement that dioxin was discoverable by 1968 is confirmed by two of the insurers experts
Nicholas Cheremisinoffand Edward Calabrese (A5268-69 at 38815-39021 A5295-96 at 3519shy
379) Cheremisinoff even cited a 1964 article describing the gas chromatography equipment
that could have detected the dioxin (A5269 at 39012-39112 A5281-86) Cheremisinoff
testified that the other contaminants found at the Site including PCBs and solvents were also
detectable (A5268 at 3883-14) Dr Hass agrees (A5583-85)
There was also sufficient reason to test for dioxin by the inception of the OneBeacon and
INA policy periods As explained by Dr Hass and experts retained by insurers by that time
dioxin present in trichlorophenol was recognized as an occupational risk (A3135 ~~ 1-5) By
1968 Dow a manufacturer oftrichlorophenol was marketing its trichlorophenol as having less
dioxin impurity than its competitors (A3135 ~ 6 A5111 at 20024-201 5) Accordingly a
20
E-002002006030
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
reasonable person engaged in the manufacture of chemicals using trichlorophenol should have
been aware of the Dow chemical marketing programs and articles published in industry
magazines such as Chemical amp Engineering News and the publip debate over Agent Orange
and its dioxin contamination [that] developed in the late 1960s (A3135 ~ 7) Cheremisinoff
testified that there was reason to test for the other contaminants found at the Site (A5267 at
3844-22) The insurers own experts assert that by that time spills oftrichlorophenol would
have been a serious issue warranting an evaluation and review as to possible
environmental11 harm (A5296-97 at 4021-437) They even mistakenly assert thatMetro-
Atlantic inust have been aware of this risk Dr Calabrese concluded (A5072 see also A5069shy
71)
[a] basic understanding [that dioxin would be present in 245shyTrichlorophenol that was used in the manufacture of hexachlorophene and that the waste material was highly toxic] and its seriousness from an environmental health and safety perspective should be [sic] been known and appreciated by responsible personnel at Metro-Atlantic as well Such collective knowledge was widely and generally available from the mid 1960s from multiple and intersecting avenues such as the industry and the scientific community and this should be used as a trigger date middot
4 Fires And Other Abrupt Releases At The Site
In addition to inadvertent releases inherent in manufacturing processes there were
several unusual large-scale releases of contaminants at the Site In the mid 1960s a fire was
started when a truck driver opened a 3000 gallon tank of methanol in an attempt to obtain
methanol for his space heater (A1182 at 397-4012) An explosion occurred when a chemical
was mistakenly pumped into a large storage tank containing a different chemical (A1182-83 at
As previously discussed the testimony that environmental harm was known in the 1960s is inconsistent with other testimony If credited by the finder-of-fact it would support the discoverability of the contaminants As discussed infra if credited this testimony would not satisfy the higher burden of showing that the disposal practices were expected or intended to cause injury
21
E-002002006031
11
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
4113-423) In January 1968 a formaldehyde tank at Metro-Atlantic exploded blew out several
windows at the plant and released a giant mushroom of formaldehyde off-Site (A5324
A5326) That explosion occurred when a delivery man mistook a full tank of formaldehyde for
an empty one (A5324) In August 1972 [a]n explosion-punctuated fire destroyed two storage
buildings and heavily damaged a third at Metro-Atlantic in which 50 gallon drums were blown
a distance of 150 feet and fire fighters from several communities fought the fire using large
amounts of water (A5327-29 A5330-31) This fire is mentioned in the complaining documents
(A0083 A0163) There was also a fire in July 1972 (A5327) Such events at the Site created
conditions conducive for spreading dioxin (A3140 A1366 at 1775-1781) The water used to
put out fires was an additional mechanism to transport dioxin (id)
5 Other Contaminants
The insurers mischaracterize the waste handling practices ofMetro-Atlantic They assert
that Metro-Atlantic was ordered in 1956 to stop dumping chemicals into the river That is
contradicted by a newspaper report that the Division of Sanitary Engineering has issued no
orders to Metro-Atlantic Co to stop dumping chemicals (A5344) The insurers assert that
Metro-Atlantic disposed ofchemicals in the river The record is that most ofthqse chemicals
were deposited by other companies upstream from Metro-Atlantic (A1014 at 569-571 A1027shy
28 at 10923-11217 A1465 at 142-23 A1471 at 404-41 23) and that the occasional
discharge of waste to the river by Metro-Atlantic was very small in volume (A5344) Such
discharges whether of waste water or acid would have been expected to be attenuated (see
= A3022) Much of the Metro-Atlantic waste was collected from the Site by independent
transporters (A3024-25 A1185 at 539-19 Al186 at 5419-551 A1202 at 1121-129 A5344)
The insurers also cite to activities ofNEC and its employees ignoring that it was a separate
corporation (see Al493-1514 A1463 at 87-21 A1263 at 1212-1321)
22
E-002002006032
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
B The Insurers Are Not Entitled To Summary Judgment On The Occurrence Issue
As pointed out at Em Mem 35-41 the complaining documents allege that contamination
of the Site occurred throughout the policy periods are silent as to whether the contamination was
expected or intended to cause property damage and otherwise raise the potentiality of
coverage resulting in a duty to defend Liberty Mutual and INA failed to defend and they are
foreclosed from seeking summary judgment on the duty to indemnify under the rule of
Conanicut 511 A2d at 971 However even if they were free to contest the duty to indemnify
summary judgment would not lie as to them or the other insurers because there are a plethora of
unresolved fact issues regarding whether there was an occurrence
1 Policies Cover Unintended Injury Caused By Intentional Acts
The Liberty Mutual policies define occurrence as an accident including continuous or
repeated exposure to conditions which results in property damage neither expected nor
intended from the standpoint of the insured~ P0194) Under applicable Rhode Island law ~ there is an occurrence unless both the injury and the act that caused the injury are intended iGrenga v Natl Sur Com 317 A2d 433436 (RI 1974) citing out-of-state authority stated
l II
that there is coverage for the unintentional results ofan intentional act but not for damages
incurred because ofan injury which was intended to be inflicted12 As discussed at Em Mem c r 35 that rule is consistently followed _
l
ITMassachusetts law which Liberty Mutual argues applies also unequivocally states that t~
accident includes the unintentional consequences of intended acts Massachusetts construes
12 That rule is not altered by Peerless Ins Co v Viegas 667 A2d 785 788-89 (RI 1995) where the Court infer[red] an intent to cause harm and injury in cases involving the sexual molestation of a minor In the overwhelming majority ofjurisdictions intent to injure is inferred as a matter of law from sexual molestation of a minor without altering the rule that unintended consequences of intended acts are accidents Doe v Libertv Mut Ins Co 667 NE2d 1149 1152 (Mass 1997)
23
E-002002006033
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
accident to include injury which ensues from the volitional act of an insured if the insured
does not specifically intend to cause the resulting harm or is not substantially certain that such
harm will occur Quincy Mut Fire Ins Co v Abernathy 469 NE2d 797 799 (Mass 1984)
A policy construction that bars coverage ofan accident resulting from a volitional act of the )
insured irrespective of the insureds intent to cause injury is overly broad and would logically
tend to negate coverage in a substantial number of if not all accidents Preferred Mut Ins Co
v Gamache 686 NE2d 989 990 (Mass 1997) In arguing to the contrary (LM Mem at 43-45)
Liberty Mutual ignores these controlling decisions It also ignores two recent decisions in its
Massachusetts litigation with Emhart where the court carefully analyzing Quincy Preferred and
other Massachusetts decisions rejected the same argument that Liberty Mutual made to this
Court See Liberty Mut Ins Co v Black amp Decker Com CA No 96-10804-DPW (D Mass
Dec 5 2003) at 40 (LibertyBlack amp Decker II) (For an event to be covered as either an
accident or occurrence the damage (as distinguished from the acts that caused the damage)
must have been unintended and unexpected by the insured) Id (D Mass Jan 27 2004) at 8shy
10 (LibertvBlack amp Decker III) The issue is whether the insured intended the environmental
harm at Centredale
Instead Liberty Mutual relies on two inapposite decisions of lower appellate courts
where the injury was intentional as a matter of fact In Smartfoods Inc v Northbrook Property
and Casualtv Co 618 NE2d 1365 1367 (Mass App 1993) the court simply held that when
the insured deliberately breached supply contracts with seven distributors the resulting harm to
the distributors was not unexpected or unintended by Smartfoods13 Liberty cites the other
13 Other courts recognize that one breaching a contract knows economic harm results and such cases are inapposite in environmental actions State of Vermont v CNA Ins Companies 779 A2d 662 671 (Vt 2001)
I
24
E-002002006034
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
case Utica Mut Ins Co v Hamel 708 NE2d 145 (Mass App 1999) as being contrary to
Preferred and Quincy notwithstanding the courts careful explanation in LibertvBlack amp Decker
I at 42-43 that to the degree it adopted an objective test Utica Mutual appears to be incorrect
as a matter ofMassachusetts law and in addition that the Utica Mutual court actually bases middot
its decision on a subjective determination -- its factual fmding that the insured in fact knew to a
substantial certainty th~t its spills would cause damage
The out-of-state cases cited by Liberty Mutual are distinguishable or have been
disapproved In Great Lakes Container Com v Natl Union Fire Ins Co 727 F2d 30 33-34
(1st Cir 1984) decided under New Hampshire law the reference to the insureds regular
business activity pertains to the sudden and accidental exception to the pollution exclusion
any mention of occurrence is dicta The Second Circuit refused to follow Borg-Warner Com
vlns Co ofN Am 174 AD2d 24 (App Civ 1993) because under decisions ofNewYorks
highest court there is an accident where the resulting damage could be viewed as unintended
by the fact finder Olin Com v Ins Co ofN Am 221 F3d 307 317 (2d Cir 2000) In
Tecumseh Products Co v Am Employers Ins Co 1998 WL 63179 (Wis Ct App 1998) an
unreported decision a Wisconsin court misinterpreted Michigan law underwhich there can
be an occurrence resulting from intentional acts when the intentional acts cause unintended
harm Aetna Cas amp Sur Co v Dow Chern Co 28 F Supp 2d 421428 (ED Mich 1998)
(AetnaDow II) The intermediate appellate court in Shell Oil Co v Winterthur Swiss Ins
Co 12 Cal App 4th 715 747-48 (1993) held that expected and intended in an
occurrence defmition bar only conduct where the insured knew or believed its conduct was
substantially certain or highly likely to result in the damage Liberty Mutual relies upon an
25
E-002002006035
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
aberrant policy construction based upon a slight change in policy language which is totally
inconsistent with Massachusetts law See 12 Cal App 4th at 748-50
2 Intent Is Determined By A Subjective Test
Massachusetts has determined and Rhode Island would deterinine that whether the
injury was expected or intended from the standpoint of the insured is analyzed using a i
subjective standard As discussed at Em Mem 35-37 courts overwhelmingly recognize that
Ithe expected or intended exception is inapplicable unless the insured specifically and
I r
subjectively intends the injury giving rise to the claim14 As the definition specifically refers to
the standpoint of the insured a subjective test is mandated
iIn arguing for an
objective standard Liberty Mutual again misconstrues Massachusetts
law repeating errors it made in the Massachusetts litigation In rejecting that argument the court
I I
noted that Utica supra a case Liberty Mutual cites actually applied a subjective test
LibertyBlack amp Decker II at 42-43 Travelers Ins Co v Waltham Indus Laboratories Corp
fshy1883 F2d 1092 (1st Cir 1989) also used a subjective test LibertvBlack amp Decker II at 43-44
When Liberty Mutual states that there was no occurrence in Waltham because the corrosion
resulted from years of routine discharges into the municipal sewer it omits that during the early
1970s well before the policies issued governmental authorities repeatedly notified the insured t
that its discharges were illegal and were causing damage 883 F2d at 1093-94 Whether events
14 The quoted language is from James Graham Brown Foundation Inc v St Paul Fire amp Marine Ins Co 814 SW2d 273 278 (Ky 1991) The other cases cited in Em Mem at 35-37 are to the same effect Additional cases adopting a subjective approach include Village of Morrisville Water amp Light Dept v US f Fid amp Guar 775 F Supp 718 730 (D Vt 1991) St Paul Fire amp Marine Ins v McCormick amp Baxter Creosoting Co 923 P2d 1200 1218 (Or 1996) and Shell Oil Co v Winterthur Swiss Ins Co 12 Cal
I
App 4th 715 747-48 (1993)
26
E-002002006036
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
that ultimately cause contamination were routine regular or repeated has nothing to do with
whether the environmental consequences of those acts was subjectively intended by the insured
While Rhode Island has not discussed the intent issue in connection with the definition
ofoccurrence this Cburt and the First Circuit both used a subjective test where an exception to
a pollution exclusion was phrased in terms of whether the discharge was expected or intended
See St Paul Fire amp Marine Ins Co v Warwick Dyeing Com 26 F3d 1195 1202 amp n4 (1st
Cir 1994) Providence Journal Co v Travelers Indem Co 938 F Supp 1066 1077 (DRI
1996) It also is likely that Rhode Island would adopt the majority rule15 and with
Massachusetts apply a subjective standard on occurrence if squarely faced with the question
Grenga applied the subjective test for determining whether an event was an accident and as
Iexplained in LibertvBlack amp Decker III at 11 the SJC and other courts have held that the
I I
occurrence defmition simply codified how courts had already construed accident
3 There Are Material Questions Of Fact Regarding Occurrence
The record establishes the existence of material issues of fact regarding the insureds
intent The insurers ignore that on summary judgment they must establish that all the
contamination was caused by events that were expected to cause environmental injury Textron
Inc v Aetna Cas amp Sur Co 754 A2d 742 755-756 (RI 2000) (if property damage results
from at least one covered cause the fact that other non-covered causes also contributed to the
property damage does not eliminate coverage) (Textron-Wheatfield)
IS See LibertyBlack amp Decker II at 47-48 (objective test is the minority view among states) Alsosect~ State ex rel Davidson v Hoke 532 SE2d 50 57 amp n 2 (WVa 2000)(concurring opinion)(It appears that a majority ofjurisdictions have adopted the subjective approach to the expectedintended exclusion collecting cases)
27
E-002002006037
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
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I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
16
The conduct of the insureds16 predecessors which is alleged to have resulted in
contamination must have taken place by no later than 1968 when manufacturing at the Site
ceased The insurers cite evidence of events that resulted in contamination but cite no evidence
of intent As discussed supra both Mr Bonchonsky and Liberty Mutual witness Woodard
recognize that before 1970 environmental concerns and issues were at a very undeveloped
stage (A3018) and that there were no references teaching that anything would cause
environmental harm (A1352-3 at 12214-1269) Nothing in the record indicates that any
occupational or hygienic concerns reflect [any insureds] understanding of the environmental
harm its practices could cause LibertvBlack amp Decker II at 123-124 (emphasis supplied)
In view ofthe lack of knowledge at the time practices which sound obviously harmful to the
modem ear or benighted may conform to then-current standards and indicate that such
practices were not expected or intended to cause environmental harm Id at 106 126
Similarly while the insurers emphasize the disposal of materials on the ground such disposal
was regarded as an accepted practibe that was generally not harmful to the environment during
the period of operations at Metro-Atlantic (A3023) Their assertion regarding disposal of matter
into the river is controverted The only evidence ofsubjective intent is that the employees did
not believe they were causing any environmental harm and that numerous other companies
Theinsured from whose standpoint an occurrence is analyzed is USM or Crown Metro for the Liberty Mutual policies Crown Metro for the OneBeacon and INA policies and Emhart for the North River policy The intent of Metro-Atlantic is not nec~ssarily imputed to the insured None of the insureds ever conducted operations at the Site Unlike knowledge expectation and intent are not readily imputed even within a corporation See Aetna Cas amp Sur Co v Dow Chern Co 44 FSupp2d 865 866-67 (BD Mich 1999) As between corporations courts were reluctant to impute expectation or intention in State Mut Life Assurance Co ofAmerica v Lumbermens Mut Cas Co 874 FSupp 451 456 (D Mass 1995) (no imputation to unsecured lender that took an active interest in management) and Quaker State Minit-Lube Inc v Firemans Fund Ins Co 868 FSupp 1278 1298 (DUtah 1994) (no imputation to seller ofdrain oil to a recycling facility) affd 52 F3d 1522 (lOth Cir 1995)
28
E-002002006038
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
engaged in comparable disposal practices~ A1189 at 6822-6916 Al238 at 439-22 Al210
at 4319-445 A1303-04 at 598-6212)
The insurers assertion of intentional disposal of dioxin is contradicted by laboratory
analysis as explained by Dr Hass (A3197-98 A5164-65 at 4134-4169 A5167 at 42512-20)
The dioxin contamination was caused by inadvertent spills or leaks of trichlorophenol (A5216-1 7
at 18921-19016) When hexachlorophene was manufactured Metro-Atlantic and the consultant
who assisted it had no knowledge that dioxin existed much less that it was an impurity in
trichlorophenol (A0400 at 2822-24) The insurers experts have testified that the first concern
that dioxin could cause environmental problems did not arise until the 1970s after large
quantities of dioxin-containing still bottoms were poured on roads near Times Beach Missouri
and a subsequent incident in Seveso Italy (A5093-97 at 5317-71 19 A3090)
middot There is no record evidence of a subjective intent to cause injury Indeed even if
occurrence were determined under an objective standard the insurers would not prevail
Mottolo v Firemans Fund Ins Co 43 F3d 723 (1st Cir 1995) (New Hampshire law) cited by
Liberty Mutual found under an objective standard that the insured could have defeated a
summary judgment motion if it had provided evidence regarding the state of general
knowledge with respect to hazardous waste including expert affidavit testimony that the state
of scientific evidence [sic] was insufficient during the relevant period 43 F3d at 730 Emhart
has provided such evidence through Mr Bonchonskys report and that evidence is even
corroborated by the insurers While the events in Mottolo occurred in the mid 1970s after the
creation of the EPA and the enactment of statutes regarding environmental issues (A3018-29) all
operations at the Site ceased well before that date Summary judgment must be denied
29
E-002002006039
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
C The Insurers Are Not Entitled To Summary Judgment On Trigger
1 Fact Questions Exist As To Each Element Of The Discoverability Trigger
OneBeacon argues that its 1969-1970 policy was not triggered under Rhode Island law
It is undisputed that in Rhode Island policies are triggered if contamination was discoverable
during the policy period and that contamination is discovenible if (1) the property damage
occurred during the policy period (2) the property damage was capable of being detected and
(3) the insured had reason to test for the property damage (see Em Mem at 37-38 OB Mem at
3-4) Here the record reveals at a minimum material issues of fact regarding each of the
discoverability requirements
The OneBeacon motion should be denied as it addresses only one contaminant dioxin
Under the previously stated rule of Textron-Wheatfield 754 A2d at 755-756 an insurer seeking
summary judgment must establish that events not covered by the policy were the sole cause of
all contamination at issue While much of the focus of this action is on dioxin the charging
documents identify nineteen contaminants found in significant quantities on the Site (A0062-65)
These include polychlorinated biphenyls (PCBs) and perchloroethylene (PCB) a widely-
used solvent that was in a number products manufactured and sold by Metro-Atlantic (A1021-22
at 8410-8617 A5334) Emharts indemnification obligation is likely to include remediation of
contaminants other than dioxin (A1543 at 5224-537) Even as to dioxin the motion fails
a There Was Property Damage
There is evidence ofproperty damage during the policy periods As previously
discussed Metro-Atlantic used trichlorophenol as an ingredient in hexachlorophene during a
period of less than twelve months in 1964 and 1965 All manufacturing at the Site necessarily
ended in 1968 when Metro-Atlantic ceased operations there The EPA has alleged that dioxin
30
E-002002006040
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
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~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
contamination occurred as a result of this manufacturing process The presence of a contaminant
in soil strongly suggests that property damage from that contaminant occurred before the insured
ceased using the contaminant Textron Inc v Aetna Casualty amp Surety Co 723 A2d 1138
1144 amp nlO (RIl994) (Textron-Gastonia) Since the contamination was discovered afterthe
policies expired it was in the soil during the policy periods Contamination ofsoils and
sediments by dioxin is property damage ld see also Insurance Co ofN Am v Kayser-Roth
Com 770 A2d 402 417 (RI 2001)
b The Dioxin Was Capable Of Detection
The dioxin was capable of detection at least as early as the 1968 inception of the
OneBeacon policy period As previously noted Dr Hass has explained that dioxin could have
been detected using the low-tech rabbit ear test bioassay (A3190 A3137) andor using available
gas chromatograph equipped with an electron capture detector (A3190 A3137-38) Several of
defendants experts concur (A5268-69 at 38815-39021 A5295-96 at 339-379)
This evidence of detectability is far stronger than that sufficient to withstand summary
judgment in the two Textron decisions See Textron-Wheatfield 754 A2d at 747 (issue of fact
sufficient to withstand summary judgment raised by testimony that using simple analysis of
groundwater samples Textron could have discovered contamination as early as 1960) Textron-
Gastonia 723 A2d at 1144 (ability to detect contamination from 1950s forward established by (
possibility that insured could have collect[ed] and analyz[ed] a groundwater sample) The
affidavits referenced in Textron-Wheatfield are in the appendix (A5361-89) Textron did not
discuss the nature of the sampling techniques or the levels that could have been discovered
Here Emhart has shown both Dr Hughto the witness upltn whom OneBeacon relies is
contradicted by other experts raising at a minimum a disputed issue of material fact
31
E-002002006041
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
Dr Hughto is mistaken as he addresses only the commercial availability of gas chromatography
and not whether gas chromatography could detect the concentrations at issue (A3090) Nothing
in either Textron case requires commercial availability of a detection method
c There Was Reason To Test
There was sufficient reason to test for dioxin by the inception date of the OneBeacon
policy Dr Hass stated that a reasonable person engaged in the manufacturing of chemicals
using trichlorophenol should have been aware of the Dow Chemical marketing program and the
articles published in industrY magazines such as Chemical amp Engineering News and the public
debate over Agent Orange and its dioxin contamination [that] developed in the late 1960s
(A3135) Dr Calabrese testified to the same effect (A5267 at 3844-22)
Once again Emharts evidence is stronger than that in the Textron cases There the
insured merely proved that ~vents had occurred which caused the contamination ie spills leaks
and other releases of contaminants found at the site The Court held 723 A2d at 1143
[t]he affidavit of Textrons expert setting forth the probable existence of property damage read together with affidavits provided by former and current employees at the Gastonia site indicating the occurrence of leaks and spills during the policy period creates a genuine issue of material fact concerning whether the contamination was discoverable in the exercise of reasonable diligence during the policy period
Textron-Wheatfield noted that Textron-Gastonia [held] that knowledge of overflow and other
leaks of solvents at the site provided the insured with reasons to test for contamination 754
A2d at 746-47 Here there is evidence ofleaks or spills oftrichlorophenol and other chemicals
before the OneBeacon policy expired 17
While the contaminants reached the environment before Metro-Atlantic merged with Crown Chemical to form Crown Metro which was later acquired by USM former Metro-Atlantic employees worked for both insureds (A1002 at 617-715 A5402 at 3412-23)
32
E-002002006042
17
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
OneBeacon cannot avoid the impact of Dr Hass testimony that a reasonable person in
Metro-Atlantics position had reason to test for dioxin by asserting that the discoverability test is i
based on a subjective standard rather than a reasonable person standard It is wrong Textron-
Gastonia held that there was reason to test when the events at issue could cause a person
exercising reasonable diligence to test for and to discover soil and groundwater contamination
723 A2d at 1144 (emphasis added) As Textron-Wheatfield explained the discoverability
trigger descends from a long and venerable line of cases including American Home Assurance
Co v Libbey-Owens-Ford Co 786 F2d 22 30 (1st Cir 1986) a case which expressly held that
the test for trigger is based on whether a reasonable person would have been aware of the
defect 754 A2d at 74618 When the policy as a whole is considered there is an ambiguity as to
the standard to apply which must be resolved in favor of the insured See Em Mem at 23-24
Rhode Island will construe ambiguous language in favor of the insured even when the insured is
a corporation rather than an unsophisticated consumer Textron Wheatfield 754 A2d at 749
amp n 2 (While business customers of insurance companies may at first glance appear to have
more power in negotiating an insurance contract in fact the only negotiation that typically occurs
over the policy language is that between state regulators and insurers)
If the policies were construed to require a subjective discoverability test there would be
tension between the occurrence and trigger requirements Unless sufficient time elapsed
between the activities which resulted in the contamination and the inception of the policy
satisfaction of the trigger requirement could interfere with satisfaction of the occUr-rence
When Rhode Island adopted its trigger in CPC Intl Inc v Northbrook Excess amp Surnlus Ins Co 668 A2d 647 649-50 (RI 1995) it relied upon Eagle-Picher Indus Inc v Liberty Mutual Ins Co 682 F2d 1225 (1st Cir 1982) The test in Eagle was whether lung damage from asbestos was diagnosable by a physician during the policy period That too is an objective test based upon clinical evaluation A reasonable person exposed to asbestos would have had reason to seek a medical opinion It was ofno moment that the opinion had not been sought or the condition medically diagnosed during the policy period Id
33
E-002002006043
I ~
I
I
18
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
requirement and vice versa The insurer is apt to argue that if there were a subjective basis for
testing the insured must have expected or intended the contamination or that the failure to
conduct tests demonstrates that there was no subjective basis to test Rhode Island declines to
interpret a policy so as to preclude coverage in almost any circumstance and render
coverage illusory Pressman v Aetna Cas amp Sur Co 574 A2d 757 759 (RI 1990) This
Court should not apply the discoverability trigger so as to become a trap for the insured
2 Rhode Island Would Adopt The Continuous Trigger
A further reason for denying summary judgment is that Rhode Island recognized the
potential viability ofthe continuous trigger in Textron-Gastonia Because we conclude that
liability under the policy may be established by one of the recognized CPC tests we need not
address the continuous trigger-of-coverage standard 723 A2d at 1141 Using a continuous
trigger under which property damage occurs during each year from the time of first hazardous
exposure through manifestation all policies from disposal to discovery would be triggered See
Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n9 (Mass 1993) I
I Since Textron-Gastonia Rhode Island has not addressed the continuous trigger but would likely
adopt that trigger in an appropriate case to avoid the potential tension between the discoverability l trigger and the requirement that damage not be expected or intended
~3 The Liberty Mutual Policies Were Triggered
Liberty Mutual argues that its 1971-1979 policies were not triggered merely because Dr
Hass did not know when the dioxin was introduced to the Site In fact Dr Hass testified that
dioxin was introduced to the Site during the manufacture ofhexachlorophene (A5117-18 at
2276-2315) Other witnesses including Liberty Mutual witness Woodard confirmed that
dioxin was introduced to the Site as a result of the residue ofhexachlorophene which occurred
during the mid 1960s (A1349-1350 at 11120-11316 A0405-06 at4915-5010 5322-25) As
34
E-002002006044
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
discussed supra Textron-Gastonia held that it is a permissible inference that property damage
middotfrom a contaminant occurred before use of the contaminant was discontinued Dioxin which is
relatively immobile was introduced to the Site before manufacturing activities ceased there in
1968 and was discoverable thereafter Indeed Dr Hass report explains in detail that during the
1970s there was increasing knowledge about dioxin contamination including the first
knowledge that dioxin raised environmental concerns and increasing sophistication in the ability
of gas chromatography to measure even lower levels of contaminants than were measured in
earlier times (A3136-37)
Liberty Mutual does not and cannot question whether dioxin was discoverable (see
section II(C)(l)(b) supra) As dioxin was discoverable in 1969 it was even more easily
discoverable in the succeeding decade of Liberty Mutual coverage particularly as in 1971 gas
chromatography techniques improved and became more available and concerns about dioxin ~ iI
mounted with news of the Times Beach Missouri disaster and other incidents of dioxin I contamination (A3133-34 3136-37) By 1970 everyone in the industry knew about dioxin
and by 1976 everyone in the world knew about dioxin as a result ofSeveso (A5113 at
20813-17) There are material issues of fact as to discoverability19 ofdioxin during 1971-1979
Til THE POLLUTION EXCLUSIONS DO NOT BAR COVERAGE
A The Sudden And Accidental Pollution Exclusion Does Not Absolve Liberty M~tual Of Its Duty To Defend
In its opening brief Emhart demonstrated that when the pollution exclusion is construed
under governing Rhode Island law there is a potentiality of coverage and Liberty Mutual and
INA must defend Textron-Wheatfield rejected the insurers argument that the pollution
Liberty Mutual does not dispute that under the exposure injury andor continuous triggers applicable under Massachusetts law (which it asserts is applicable) its policies would be triggered See Trustees of Tufts Univ v Commercial Union Ins Co 616 NE2d 68 75 amp n 9 (Mass 1993) The Tufts court declined to select from among the various trigger theories as any ofthose triggers would raise a d~ty to defend
35
E-002002006045
19
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
i
exclusion permitted coverage for only abrupt events 754 A2d at 752 (INAs proposed reading
of the word sudden as necessarily including a temporal element breaks with the history of the
word as courts have construed it ) The Court concluded that the purpose of the pollution
exclusion was to deny coverage to reckless or intentional polluters but to provide coverage to
insureds who undertake a good-faith effort to dispose of contaminants safely yet suffer an
unexpected discharge despite these efforts I4 at 754 The practice that caused the bulk of the
contamination in Textron-Wheatfield was depositing waste into an unlined containment pond
The Court applying the pollution exclusion tothat practice reversed a grant ofthe insurers
summary judgment motion on the duty to indemnify It held that whether the insureds waste
handling practices amounted to indiscriminate dumping of toxic chemicals or efforts to
prevent it[s waste] from contaminating the environment is a disputed question ofmaterial fact
in this case 754 A2d at 754 Similarly here the EPA alleges contamination from
manufacturing operations but its allegations lack sufficient detail to establish that the
contamination resulted from reckless or intentional pollution Thus there is the potentiality
of coverage requiring a duty to defend particularly since the insurers must establish that all
contamination was the result ofreckless and intentional pollution Id at 755 (Ifproperty I
damage results from at least one covered cause the fact that other non-covered causes also
contributed to the property damage does not eliminate coverage)
Liberty Mutual would not be absolved of its duty to defend even ifMassachusetts law
applied There is extrinsic evidence of abrupt events that caused contamination including the
fire and explosions in the mid 1960s the January 1968 explosion and the 1972 fires all
discussed supra Such events are sudden and accidental under the Massachusetts
interpretation ofthe pollution exclusion Nashua Coro v First State Ins Co 648 NE2d 1272
36
E-002002006046
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
1276 (Mass 1995) reversed summary judgment in favor of the insurer as the release of2000
gallons ofxylene when a tank seal burst was sudden and accidental Under Massachusetts law
such extrinsic evidence may be considered in analyzing the duty to defend Eg Herbert A
Sullivan Inc v Utica Mut Ins Co 788 NE2d 522 531 (Mass 2003)
B Fact Questions Preclude Summary Judgment On Indemnification I
The arguments that Liberty Mutual and North River are entitled to summary judgment on I
indemnification due to the pollution exclusion ignore the rule of Textron-Wheatfield that
summary judgment may not be granted unless all the property damage was caused by conduct I outside the scope of the pollution exclusion 754 A2d at 755-756 The Court followed the line ~ of cases holding that the pollution exclusion could bar coverage only if the sole cause of the
damage at issue fell within the pollution exclusion clause One basis for reversing summary I
judgment was the presence of disputed issues of material fact as to whether releases from sources
other than the containment pond contributed to the property damage
Moreover the insurers fail to adhere to Rule 56 standards by omitting evidence
unfavorable to them The facts previously discussed establish that the damage did not result
entirely if at all from intentional and reckless pollution As discussed supra the Hass and
Bonchonsky testimony permit a fmding that the dioxin contamination resulted from inadvertent
spills and leaks not intentional disposal (A3197-98 A5164-65 at 4134-4169 A5167 at 42512shy
20 A5216-17 at 18919-19016) Moreover reliance upon discharges of substances not at issue
such as caustic acids (se LM Mem at 57-58) fS entirely misplaced See Smith v Hughes
Aircraft Co 22 F3d 1432 1439-40 (9th Cir 1993) The Bonchonsky report also establishes
that the alleged Metro-Atlantic disposal practices were in accordance with the standards of the
time (A3023-30) The activities ofMetro-Atlantic in manufacturing products and suffering
37
E-002002006047
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
inadvertent spills and leaks is comparable to Textron-Wheatfield where issues of fact existed as
to whether disposal of wastes in a containment pond was barred by the pollution exclusion
Summary judgment would not lie on indemnification even if the insurers were able to
avoid Rhode Island law As discussed supra even when the sudden and accidental exception
is given a temporal construction there were a number of events at the Site within the exception
to the pollution exclusion These include the fires and explosions discussed supra Similar
events precluded summary judgment for the insurer in Nashua supra New York and
Connecticut law which North River seeks to apply are to the same effect See Buell Indus Inc
v Greater NY Mut Ins Co 791 A2d489 506 (Conn 2002) Northville Indus Coro v Natl
Union Fire Ins Co 679 NE2d 1044 1048 (NY 1997) Regardless ofthe applicable law
neither Liberty Mutual nor North River may pr_evail on summary judgment based on the
pollution exclusion
C The INA Exclusion OfWaste Products Is Inapplicable
As discussed at Em Mem 45-46 the INA policy has an Exclusion of Waste Products It
pertains to coverage for property damage caused by intentional or willful introduction of waste
products fluids or materials including oil refuse gas or gas bleed water into any soil or inland
or tidal waters The introduction must be intentional but [k]nowledge of the harmful effects
of such acts by the insured is not required
INA would rewrite the phrase waste products fluids or materials so that waste
modifies products but not fluids and materials and thus would read materials fluids and
waste products ( INA Mem at 7) It then argues that fluids and materials were introduced
That is not what the policy says But even if the policy were ambiguous and could be read as
INA has rewritten it Rhode Island would construe the language against INA (see Em Mem at
23) This rule applies to sophisticated insureds See Textron-Wheatfield 754 A2d at 749 amp n2
38
E-002002006048
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
When construing a word in context Rhode Island employs a principle known as
noscitur a sociis (literally from the Latin it is known by its associates) under which the
meaning of a word in a written instrument must be determined by reference to the terms
accompanying the word and more specifically that general and specific words are associated
with and take color from one another Allstate Ins Co v Russo 641 A2d 1304 1307 (RI
1994)~ The broad term misrepresentation was narrowed where it was accompanied by words
such as libel and humiliation in a definition ofpersonal injury Id Here the exclusion
itself sets forth two examples oil refuse and gas bleed water both clearly waste fluids The
exclusion itself is entitled Exclusion of Waste Products INAs reading is much too broad
When the scope of the exclusion is not distorted it becomes clear that it does not apply
The adjective waste is defmed as matter thrown away or aside as worthless defective or of
no further use during or at the end of a process Websters Third New Intl Dictionary j
(unabridged) Merriam-Webster Inc (1993) p 2580 The term waste is not synonymous with
pollutant contaminant or any of the other terms INA finds in the complaining documents
Oil transported to be used as fuel is not a waste fluid but once it is spilled it is considered a
contaminant On the other hand much benign material such as scrap lumber becomes waste
during the course of manufacturing a product
1 middot INA Is Required To Defend
The complaining documents allege that dioxin is present not that it is a waste product
fluid or material or that the insured or anyone else disposed of it intentionally or willfully
(see~ A0047 A0058 A0060 A0078 A0084 A0087) It is settled lawin Rhode Island that
if at least one allegation is covered the insurer must provide a complete defense (see Em Mem
at 24) The allegations regarding this major contaminant are sufficient to require INA to defend
Further INA makes no attempt to show that all other contaminants were within the exclusion
39
E-002002006049
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
INA also makes much of the EPAs use of terms such as release and disposal As discussed
at Em Mem 42-43 these terms do not show intentional or willful introduction
2 Fact Questions Preclude Summary Judgment On Indemnification
Regarding the duty to indemnify there is at the very least a question of fact as to whether
dioxin was a waste product waste fluid or waste material which was introduced intentionally or
willfully As discussed the expert testimony based on the analytical data shows that there were
inadvertent releases of trichlorophenol a raw material used in the production of
hexachlorophene INA also does not rule out inadvertent releases ofother contaminants At a
minimum fact issues exist
The presence of the dioxin in the trichlorophenol was not known to Metro-Atlantic or its
consultant at the time the insured manufactured hexachlorophene (A0400 at 2822-24) While
under INAs exclusion it is irrelevant that an insured did not know that the waste being
deposited was harmful the inslirred or at least the entity depositing the materials had to deposit
the waste intentionally or willfully It is not possible for someone to do something
intentionally or willfully if the party does not know that it is doing the thing at all20
INA does not address these issues and the cases it cites are not on point INA makes no
attempt to show that any of the snippets from out-of-state cases that it cites have anything to do
with the exclusionary language at issue here or with Rhode Islands own narrow view of
pollution exclusions (see INA Mem at 12-14) For example in Lumbermens Mut Cas Co v
Belleville Indus Inc 938 F2d 1423 (1st Cir 1991) the court applied a standard pollution
exclusion construed under the law of Massachusetts which unlike Rhode Island holds that
INA reads its exclusion to apply to the deposit of waste materials by anyone not only the insured The case INA cites (INA Mem at 8 ti 10) pertains to an exclusion with different wording and is inapposite In view ofthe policy~ reference to the insureds knowledge INAs reading of its clause is strained
40
E-002002006050
20
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
sudden has a temporal element There is no indication that words such as disposal as used
incited cases had the same particularized meaning as when used by the EPA Peerless Ins Co
v Viegas 667 A2d 785 (RI 1995) a sexual molestation case is inapposite As discussed
supra sexual molestation is one of the few areas in the law where intent is presumed
D One Beacon May Not Retroactively Insert A Pollution Exclusion Into Its Policy
OneBeacon seeks summary judgment based on a pollution exclusion notwithstanding I
l I f
that its policy contains no such exclusion The policy that was issued to Crown Metro21
incorporates the terms of INA Policy No XBC 64674 (P0704-12) which contains no pollution
exclusion (ill) OneBeacon asserts that its policy should have incorporated the terms of the r
subsequent INA policy (P0582-94) It may not on summary judgment seek to reform a thirty
year old instrument to add a new exclusion
1 Rhode Island22 permits reformation of an insurance policy only on the grounds of mutual
mistake not unilateral mistake Associates in Anesthesia Inc v Mutual Benefit Life Ins Co
504 A2d 477 478 (RI 1986) In addition there can be no reformation unless the variance
between what is written and what was originally intended as well as the mutual mistake are
demonstrated by clear and convincing evidence Hopkins v Equitable Life Assurance Society
270 A2d 915 918 (RI 1970) OneBeacon relies on a recent affidavit from its former employee
Vincent Puccio He asserts that he made an error in inserting the number of the policy that was
incorporated There is an issue of fact as to the credibility of a self-serving affidavit alleging
without documentary support a mistake made thirty years earlier It was signed after discovery
indicated the absence of any knowledgeable representative of the insured The affidavit contains
21 The policy was issued by Employers Surplus Life Insurance Company (ESLIC) and OneBeacon admits that it is the successor to ESLIC For convenience ESLIC will be referred to as OneBeacon
22 It is undisputed that Rhode Island law applies to the policy~ OB Mem at 1 nl)
41
E-002002006051
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
no competent evidence much less clear and convincing evidence of any mistake on the part of
Crown Metro Mr Puccios assertions regarding the alleged intent of Crown Metros broker
(A3204 ~ 22) are mere speculation and inadmissible See Maiorana v MacDonald 596 F2d
1072 1080 (1st Cir 1979) (affidavits were improper because they purported to examine the
defendants thoughts)
A decision on reformation is inappropriate on summary judgment Whether there was a
mutual mistake warranting reformation is for the ultimate finder of fact See Associates in
Anesthesia 504 A2d at 478 (Although there was evidence from which UYY could infer
mistake on the part of plaintiffs there was none from which a iury could infer mistake by
defendants) (emphasis added) The very existence of the actual insurance policy without a
pollution exclusion creates an issue of fact as to whether it was reformed On summary
judgment the OneBeacon Policy may not be deemed to have a pollution exclusion
Not satisfied with adding a pollution exclusion to its policy OneBeacon argues that the
non-existing pollution exclusion should be more draconian than the exclusion in the INA policy
middot The exclusion in the INA policy discussed in the preceding section was added by Endorsement
6 dated June 19 1969 (P0594) That endorsement deleted Endorsement 5 a prior pollution
exclusion and was applicable retroactively to the initial date of coverage of the INA Policy)
Thus the Crown Metro and INA rights under the insurance policy were determined by
Endorsement 6
The OneBeacon Policy states that it provides coverage subject to all the terms and
conditions of the underlying policy (which OneBeacon now asserts is INA Policy No XBC
46961) One Beacon by agreeing to incorporate the terms of a policy rather than write its own
policy chose to rely on INA to set the coverage terms It could have written an excess policy
42
E-002002006052
I
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
with terms of its own as Liberty Mutual did (Shamp P081 0-13) or drafted its policy subject to the
terms and conditions of the underlying policy as of a certain date23middot It did neither By adopting
all terms and conditions of the underlying INA Policy it adopted Endorsement 6 (P0594)
Moreover Endorsement 6 was contemporaneously provided to OneBeacon and was
attached to the OneBeacon Policy in OneBeacons files (A3206-07) There is no indication that
OneBeacon protested the endorsement Accordingly if the OneBeacon Policy were reformed to
add a pollution exclusion the new exclusion must be the waste products exclusion contained in
the operative INA Policy OneBeacons motion for summary judgment based on that exclusion
then fails for the same reasons as the INA motion
IV EVIDENCE OF EXTENSIVE OFF-SITE CONTAMINATION DEFEATS THE INSURERS ARGUMENTS REGARDING SUIT PROPERTY DAMAGE AND OWNED PROPERTY
A The PRP Letter And Unilateral Orders Are The Functional Equivalent Of Suits For Damages On Account Of Property Damage
Liberty Mutual does not question that it must mount a defense where there is a functional
equivalent of a suit (LM Mem at 28-33) As explained at Em Mem 27-33 the
overwhelming majority of states have held that a PRP letter is the functional equivalent of suit
Liberty Mutual purports to rely on Hazen Paper Co v U S Fidelity amp Guar Co 555 NE2d
576 581 (Mass 1990) but actually mischaracterizes both Hazen and the record in this action
Liberty Mutual asserts that the PRP letters here are not suits within the meaning of
Hazen because they seek voluntary action (LM Mem at 30) While it purports to rely upon
Hazen its argument that a PRP letter using the word voluntary is not coercive is directly
contrary to the holding in that case The PRP letter found to be the functional equivalent of suit
Such an endorsement may have been ineffective to insulate OneBeacon from an amendment of the underlying policy See LE Myers Co v Harbor Ins Co 394 NE2d 1200 1202-1204 (Ill 1979)
43
E-002002006053
23
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
in Hazen contains the same language requesting voluntary involvement 555 NE2d at 580 as
those here The Liberty Mutual reliance on the word voluntary is misleading as the PRP letter
repeatedly demands payment of costs and outlines the CERCLA statutory framework for
compelling remediation including daily fines for refusing to participate in the clean-up (see Em
Mem at 5-6 and A00047-51) Hazen ruled that despite the polite language and use of the word
voluntary in view of the statutory framework ofCERCLA [i]t would be naive to
characterize the EPA letter as a request for voluntary action 24 555 NE2d at 581-582 Here
Emhart was later faced with multiple Unilateral Administrative Orders having all the trappings
of a formal proceeding
The argument that the suit is not on account of damage (LM Mem at 31-32) also
mischaracterizes Hazen and the record Hazen held that where the EPA letter asserts that
hazardous wastes have been released on the site and that there may also have been off-site
groundwater contamination the complaining doctupents alleged property damage 25 55 5
NE2d at 582 The only area of meaningful dispute was whether clean-up costs in response to
property damage are damages within the meaning of the policy language Id It answered
that meaningful question in the affirmative ld at 582-584 Here as in Hazen there were
allegations of extensive contamination to soil and water (see Em Mem at 28 33-34 and
citations therein) The only situation that the Hazen court excluded from the scope of damages
was a state agencys request to remove barrels that had not leaked since there has been no
property damage Id at 582 (emphasis supplied) Liberty Mutual relies on Hazen without
acknowledging the crucial proviso ie that costs are not covered only where there has been no
24 This issue is discussed in greater detail in Emharts initial memorandum (see Em Mem at 27-33)
25 Rhode Island law is to the same effect Ins Co ofN Am v Kayser-Roth Corn 770 A2d 402 417 (RI 2001) (contamination ofa site was property damage)
44
E-002002006054
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
property damage Id It also forgets that the Hazen court found a duty to defend where as here
the EPA asserted in a PRP letter that hazardous wastes have been released on the site and that
there may have already been off-site groundwater contamination 555 NE2d at 582-83
In drawing the distinction between the removal of ruuns which had not yet caused
contamination and remediation of damage which had already occurred the Hazen court cited
Aerojet-General Com v San Mateo County Superior Court 257 Cal Rptr 621 635 (Cal Ct
App 1989) where the difference between the two situations was illustra~ed as follows 26
Petitioners have two underground storage tanks for toxic waste Tank 1 has leaked wastes into the soil which have migrated to the groundwater or otherwise polluted the environment Tank 2 has not leaked but government inspectors discover that it does not comply with regulatory requirements and could eventually leak unless corrective measures are taken Response costs associated with Tank 1 will be covered as damages because pollution has occurred Tank 2 would not be covered
Based on this distinction the Hazen court concluded that environmental cleanup costs incurred
in response to demands of governmental agencies are damages when there has been a
discharge of pollutants that has caused propertv damage27 555 NE2d at 583
Liberty Mutuals selective reading of the complaining documents to find isolated
references to prevention completely distorts them The PRP letter while utilizing the
boilerplate language release or threatened release lists specific contaminants and among other
things refers to the installation of interim caps over contaminated soil areas (see Em Mem at 5
andA0024) The First Unilateral Administrative Order lists contaminants already found at the
26 See also Boeing Co v Aetna Cas amp Sur Co 784 P2d 507 515-16 (Wash 1990) (en bane) and subsequent Washington decisions AY McDonald Indus Inc v Ins Co ofN Am 475 NW2d 607 624 (Iowa 1991) N States Power Co v Fidelity amp Cas Co ofN Y 504 NW2d 240 245-46 (Minn App 1993) (all relying on the Aerojets Tank II Tank 2 hypothetical)
27 Another court drawing the same line explained that [t]he costs of containment as a remedial action taken to prevent further release ofhazardous substances would be considered damages Hartford Accident amp Indem Co v Dana Corp 690 NE24 285 298 (Ind App 1998) (emphasis supplied)
45
E-002002006055
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
Site in surface and subsurface soil sediment and at the groundwater surface water interface in
the WoonasquatucketRiver (see Em Mem at 7 and A0058) The Second Unilateral
Administrative Order refers to the excavation of soils contaminated with dioxin (see Em Mem
at 9 and A0112) Contamination at the Site was not a theoretical possibility As a court said
about a similar argument [i]t is simply untenable for defendants to claim that there is no
evidence of property damage on the record Apparently defendants would have us hold that
soil that requires one million dollars to clean up and groundwater that is undrinkable for
millennia are not property damage StatemiddotofVermont v CNA 779 A2d at 669
If Liberty Mutual is arguing that the costs of specific remediation actions referenced in
the complaining documents are not damages it completely misunderstands the purpose of
those actions There already is property damage and the EPAs aim is to prevent or mitigate
further damage Hazen holds th~t such damages are within the scope of the policies28
Remediation of the type described in the complaining documents clearly is within the scope of
damages in Rhode Island In CPC Intl 144 F3d at 48 a case decided under Rhode Island
law the First Circuit upheld a jury verdict for expenses for excavation ofcontaminated soil in
manholes and catch basins and for the capping and paving of soil activities identical or
comparable to the remediation described in the complaining documents here See Shamp A0078shy
80 (referring to interim soil cap) A0112 (referring to excavation of contaminated soil)
The Site was contaminated and the EPA required remediation to address that
contamination Liberty Mutual and INA had aduty to defend
Liberty Mutual also forgets the courts plain statement in LibertvBlack amp Decker II at 76 that [t]he essential point ofthe Hazen Paper court was that the insurer was obligated to pay for all damage for which the insured was legally required to pay as a result of the property damage whether these costs were considered remedial costs natural resource damages or the prevention of further damage
46
E-002002006056
28
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
B Rental Property Exclusions Do Not Bar Coverage
The insurers references to rental property exclusions are utterly misguided As
demonstrated at Em Mem 46-47 the Site includes among other things contamination in the
Woonasquatucket River which was not rented or occupied or controlled by the insured as well
as contamination of the portion of the Site occupied by the barrel company This is evident from
the complaining documents previously cited (see also A1542) Thus rental property exclusions
cannot absolve the insurers of the duty to defend a claim including property not rented by the
insured If and to the extent that some part of the remediation were within the scope of some
rental property exclusion that at most could impact the amount of Emharts damage The
existence of damage to third party property requires a duty to defend and prevents summary
judgment in favor of the insurers
INAs exclusion applies to property damage to property rented to occupied or used by lor in the care custody or control of the insured to the extent the insured is under contract to provide insurance therefor (P0588 emphasis supplied) There is absolutely no evidence that the
insured was under contract to provide insurance for any of the premises at issue here Liberty
Mutuals policy expressly covers real property rented to or leased by the insured (P0055)
Liberty Mutual does not explain how that language is purportedly not applicable See LM Mem
at 36-37 In view of that explicit coverage clause the policy cannot be construed to exclude
coverage of real property which is rented See Pressman 574 A2d at 759
As shown at Em Mem 46-47 even ifthere were relevant exclusions and the actual
damage were limited to property rented by the insured such exclusions would not bar recovery
for remediation of property _rented by the insured so long as the remediation is at least in part
intended to address actual or threatened third party damage See Allstate Ins Co v Quinn
Const Co 713 F Supp 35 4041 (D Mass 1989) vacated as a result of settlement 784
47
E-002002006057
II
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
FSupp 927 (D Mass 1990) (coverage where policy included a broad owned property exclusion
and the remediation performed on or below the insurers property to prevent contamination of
the property of third parties [l]t serves no legitimate purpose to assert that soil and groundwater
pollution must be allowed to spread over boundary lines before they can be said to have caused
the damage to other peoples property which liability insurance is intended to indemnify)
V THE SCOPE AND CONSEQUENCES OF THE DUTY TO DEFEND
A INA Is Required To Pay Defense Costs
INA makes a number of arguments about why it should not be held liable for Emharts
defense costs in the EPA proceeding even though it has clearly acted in breach of its duty to
defend Emhart The argument that Emhart merely seeks reimbursement for defense costs it
incurred with defense counsel of its own choosing is foreclosed by the Courts analysis in
Nortek There the insured was served with a complaint and immediately hired its own lawyers
to defend against the action 858 F Supp at 1233 The insured did not notify the insurer of the
complaint until almost a year later and the insurer initially refused to defend and then later
admitted a limited duty to defend the insured ld at 1233 1241-42 The Court had no difficulty
concluding that the insurer was in breach because inter alia it did not reimburse Nortek for all
of the reasonable fees and expenses [the insured] incurred defending itself against all ofthe
claims in [the underlying litigation] from the start of the litigation ld at 1238-39 It made no
difference that the insured had hired its own lawyers at the beginning of the litigation ful at
1233) or that in light of the insurers limited offer of defense the insured continued with
defense counsel it had selected at the outset of the lawsuit and defended that action itself at its
own costs Id at 1242 The insurer was in breach of its duty to defend
Here INA coUld have elected to assume the defense of the EPA proceeding when it
received notice It could have sought to retain counsel of its own choosing It did not do so and
48
E-002002006058
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
should not now complain that it was presented with a fait accompli (INA Mem at 15 nS) when
it in fact has done nothing to fulfill its obligation to provide a defense
The INA argument that Emhart has not established which of [its] alleged costs are
properly categorized as defense costs (INA Mem at 16) isirrelevant and misleading Emhart
sought partial summary judgment on whether INA acted in breach of its duty to defend not on
the question of the amount of damages arising from that breach For this purpose there is no
need to list the amounts of defense costs incurred to date in connection with the EPA proceeding
Emhart produced invoices from Swidler Berlin ShereffFriedman and invoices reflecting other
costs in connection with investigation and remediation Whether invoices from sources other
than Swidler Berlin Shereff Friedman are characterized as defense or indemnification is better
left until after a determination concerning whether INA is in breach of its duty to defend
INA also argues that it cannot be held liable for any defense costs incurred by Emhart 1
prior to the November 22 2000 notice date although it acknowledges that the Rhode Island
courts have not determined whether pre-notice29 defense costs are recoverable (see INA Mem at
16-17) A number of courts have held that an insured may recover defense costs incurred prior
I i
to providing notice to the insurer Eamp Truck Ins Exchange v Vanport Homes Inc 58 P3d
276 281 nS (Wash 2002) (insurer may be responsible for defense costs prior to tenderi0
Here in connection with other policies Emhart provided INA with notice of the EPAs
request for information regarding the Site on July 21 1999 (A0226-32) and of the PRP Letter on
29
30
INA refers to the issue ofpre-tender defense costs although courts have generally rejected the archaic requirement that an insured perform the ritual oftender in addition to providing notice 1g Cincinnati Companies v W Am Ins Co 701 NE2d 499 503-504 (Ill 1998)
See also Sherwood Brands Inc v Hartford Accid amp Indem Co 698 A2d 1078 1086-87 (Md 1997) Nationwide Mut Fire Ins Co v Beville 825 So2d 999 1004 (Fla App 2002) (noting that the suit had to be defended from the very outset and that there was no suggestion that the insureds expenses in defending [prior to notice] were unreasonable or in some way prejudiced the carrier)
49
E-002002006059
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
March 14 2000 (A0238-41) Emhart was unaware of the existence of Policy XBC 46961 and
so could not provide notice under that policy After Emhart undertook an investigation regarding
policies issued to its predecessors by other insurers (A5345-46) and subsequently was informed
of the existence ofPolicy XBC 46961 from another insurer (A5347 A5348-60) it made a claim
under that specific policy
Finally INA asserts that Emhart has not established the exhaustion of the limits of the
underlying policy (INA Policy No GAL 36697) and argues that INA therefore has no duty to
defend Under Policy XBC 46961 As noted at Em Mem 47-48 Policy XBC 46961 obligates
INA to provide a defense [w]ith respect to any property damage not within the terms of
the coverage of underlying insurance but within the coverage of this insurance (P0583) That
obligation exists without reference to any exhaustion of the underlying policy or deductible
INA issued Policy GAL 36597 the policy underlying Policy XBC 46961 and has filed31 a counterclaim asserting that the policy does not provide coverage for the Emhart claim If as
INA asserts there is no coverage under Policy GAL 36597 Policy XBC 46961 clearly
provides that INA must defend If as is the case Policy GAL 36597 covers the claim the claim
is clearly in excess of the underlying coverage of$100000 When there is a likelihood that a
claim will exceed the underlying coverage an excess insurer must defend prior to exhaustion of
underlying coverage (see Em Mem at 48-49 and cases cited therein)
B There Is No Basis For This Court To Consider Allocation In Determining The Obligations Of INA Or Liberty Mutual
INA and Liberty Mutual argue that defense or indemnification costs should be allocated F
among insurers (INA Mem at 17 20-23 LM Mem at 42) That argument is both premature and r I
31 Emhart was unaware that INA had issued the underlying policy until INA produced it following the close ofdiscovery in this action
50
E-002002006060
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
erroneous Emhart believes that Rhode Island in determining as a question of first impression
whether to adopt joint and several liability or allocation will join the courts that recognize that
the policy language creates joint and several liability of all insurers on the risk
1 Issues Regarding Allocation Should Not Be Considered Now
The present motions involve the duty to defend and the duty to indemnify not the
amounts due Emhart from particular insurers As discussedmiddot supra INA and Liberty Mutual
have a duty to defend The underlying claim is ongoing Neither insurer can avoid its duty by
relying upon some possible future allocation GulfChem amp Metallurgical Com v Associated
Metals amp Mineral Corp 1 F3d 365 372 (5th Cir 1993) carefully explained that the duty to
defend exists even when costs are allocated32
Though we approve the concept of apportioning the_ cost of an insureds defense among those liable for exposure risk during the period for which claims are made against the insured we do not limit the duty of defending the insured This duty is owed by each and every insurer whose policy is potentially implicated and is not diminished by the presence of other insurers or by the fact that the insured was without coverage during part of the relevant period This duty remains absolute until the insurer proves that its policy covers no remaining claims
This is consistent with Rhode Island law where an insurer must provide a complete defense so
long as any one of the acts alleged in the complaining documents could possibly be covered
under the policy Nortek 858 F Supp at 1236 (emphasis in original) 1
Neither INA nor Liberty Mutual has offered any precedent for a finding that an insurer
had no duty to defend grounded upon a prediction of an ultimate allocation among insurers
Were courts to enter the thicket of allocation law prematurely insureds would be left to fend for
themselves while allocation issues among insurers were resolved Such an approach would rnah~
51
E-002002006061
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
a mockery of the protections which insurance policies are supposed to provide to an insured
Even where there is joint and several liability one insurer generally has a right of contribution
against other insurers See~ Cooley v John M Anderson Co 443 A2d 435 437 (RI
1982) There is simply no reason to reach these issues now
2 Liability Among The Insurers Is Joint And Several
In any event Rhode Island is likely to reject the insurers allocation approach The
decision to reject allocation becomes important and involves the insured only when the court also
adopts the fiction ofself-insurance Owens-Illinois Inc v United Ins Co 650 A2d 974
989 991 (NJ 1994) That was central in Security Ins Co ofHartford v Lumbermens Mut
Cas Co 826 A2d 107 125-26 (Conn 203) a case upon which INA heavily relies Other
courts flatly reject this judicial fiction33 and it is likely that Rhode Island would do the same
For example in Reliance Ins Co v New England Tel amp Tel Co 1998 WL 773671 at 3(RI
Super 1998) after a careful analysis based upon numerous out-of-state cases Rhode Islands
statutory definition ofinsurer and two in-state decisions34 the trial court in construing an
other insurance clause concluded that self-insurance was the antithesis of true insurance
because unlike the latter self-insurers retain all risk ofloss35
32 Although Gulf predicted Texas would allocate defense costs Texas later rejected allocation Texas Property and Cas Ins Guar Assn v Southwest Aggregates Inc 982 SW2d 600 604-08 (Tex App 1998)
33 See eg TPLC Inc v United Natl Ins Co 44 F3d 1484 1494 (lOth Cir 1995) (terming selfshyinsurance a judicial fiction) Keene Corp v Ins Co ofN Am 667 F2d 1034 1048-49 (DC Cir 1981) H France Refractories Co v Allstate Ins Co 626 A2d 502 (Pa 1993)
34 Ellis v RI Pub Transit Authority 586 A2d 1055 (RI 1991) RI Insurers Insolvency Fund v RI Pub Transit Authority 1994 WL 930941 (RI Super 1994)
35 Even courts adopting the fiction ofself-insurance often decline to declare periods ofself-insurance where insurance was not available ie where policies excluded liability for environmental contamination See Owens-Illinois 650 A2d at 995
52
E-002002006062
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
bulli
IThe courts which reject allocation in favor ofjoint and several liability also have the
policy language on their side As explained in Chicago Bridge amp Iron Co v Certain
Underwriters at Lloyds London 797 NE2d 434441 (Mass App 2003) (Illinois law) the
obligation to indemnify a loss arose when a covered event resulted in property damage during
the policy period Id However the phrase during the policy period does not define the
extent ofcoverage Id Although property damage taking place during the policy period is I
what triggered [the insurers] obligation nothing in the policy limited [the insurers] liability Ishy
to only those damages occurring within the policy period 797 N E2d at 440-4136 Indeed in
Owens-Illinois 650 A2d at 992 995 cited by INA the New Jersey Supreme Court candidly Iadmitted that it could not find support for allocation in the text of the insurance policies that it f
was relying solely upon public ~terest factors and that it would not hesitate to revisit the li
issue if its solution proved inefficient or unrealistic Allocation of defense costs is
I ~
particularly inappropriate As stated in Chicago Bridge the defense costs were not expended in
direct relation to the timitlg duration or degree of the contamination 797 NE2d at 445 r Rejection ofjoint and several liability would give each insurer a windfall by limiting its defense
costs to a small proportion of the costs it otherwise would have incurred
c Because Of Their Breach Of The Duty To Defend Both Insurers Must Indemnify Emhart
In Conanicut Rhode Island adopted the rule that where an insurer refuses to defend an
insured pursuant to a general-liability policy the insurer will be obligated to pay in addition to
the costs of defense and attorneys fees the award of damages or settlement assessed against the
insured 511 A2d at 971 see Em Mem at 2 25-26 49 Liberty Mutual and INA now argue
36 See also Goodyear Tire amp Rubber Co v Aetna Cas amp Sur Co 769 NE2d 835 841 (Ohio 2002) ([t]here is no language in the triggered policies that would serve to reduce an insurers liability if an injury occurs only in part during a given policy period)
53
E-002002006063
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
I)
that this rule should not be applied here In Michaud supra 1994 WL 774683 at 9 a similar
argument was addressed fllld rejected
It matters little whether I favor the rule established in Massachusetts [under Polaroid Com v Travelers Indemnity Com 610 NE2d 912 (Mass 1993)] or Rhode Island Here Rhode Island law applies The Rhode Island Supreme Court has stated that to avoid liability for wrongful failure to defend the insurer may either enter into a nonwaiver agreement to defend an insured and later question coverage or bring a declaratory judgment action on the question of coverage Merrimack [the insurer] did neither Therefore Merrimack is required to indemnify these plaintiffs for the settlement costs in the [underlying] action
As Michaud emphasized Conanicut articulates two options by which insurers can protect
themselves entering into a nonwaiver agreement with the insured or bringing a declaratory
judgment on the question of coverage Conanicut 511 A2d at 971 nlO Michaud 1994 WL
774683 at 9 Liberty Mutual and INA have done neither They have no cause to complain
While Comunale v Traders amp General Ins Co 328 P2d 198201 (Cal 1958) cited in
Conanicut deals with this rule in the context of a bad faith failure to settle within the policy
limits [i]t is well established in California that an insurer thatwrongfull~ refuses to defend is
liable on the judgment against the insured Samson v Transamerica Ins Co 636 P2d 32 42
(Cal 1981)37 Other states require an insurer who breaches its duty to defend to pay as
damages for the breach arty judgment or settlement assessed against the insured without the
right to contest coverage 38
37 In Afcan v Mut Fire Marine and Inland Ins Co 595 P2d 63 8 (Alaska 1979) cited by Liberty Mutual an insurermiddotwho withdrew from a defense ofa suit alleging both covered and non-covered claims was permitted to argue that some portion ofthe settlement was not covered See Sauer v Home Indem Co 841 P2d 176 183 (Alaska 1991) Here neither Liberty Mutual nor INA ever provided a defense
38 ~Missionaries ofthe Company ofMary Inc v Aetna Cas amp Sur Co 230 A2d 21 (Conn 1967) Samson v Transamerica Ins Co 636 P2d 3242 (Cal 1981) St Paul Fire amp Marine Ins Co v Thomas 273 So2d 117 121 (Fla App 1973) Rogan v Auto-Owners Ins Co 832 P2d 212216 (Ariz App 1992)
54
E-002002006064
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
0
Neither Liberty Mutual nor INA provide any support for asserting that Conanicut should
_not apply here They do not explain why it matters whether the underlying litigation has been
resolved or show that the insurers defense obligation must be clear from the face of the
policy In Conanicut the policy was ambiguous with the insurer contending it was a policy of
indemnity and the insured arguing successfully that it was a general liability policy Conanicut
should not spawn a second round of litigation as to whether the insureds duty to defend was
clear The insurers bad the opportunity to defend under a non-waiver agreement or to seek a
declaratory judgment They failed to take either step Conanicut applies
CONCLUSION
For the foregoing reasons and those stated in Enihart s prior memorandum this Court
should grant Emharts mption for partial summary judgntent and deny the insurers motions
Respectfully submitted
~v~u~uJ s(2391) Allen amp Snyder LLP
Fleet Center Providence Rhode Island 02903 (401) 274-2000
Willcox Pirozzolo amp McCarthy Professional Corporation 50 Federal Street Professional Corporation 50 Federal Street Boston Massachusetts 02110 middot (617) 482-5470
55
E-002002006065
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688
CERTIFICATION
To
Robin L Main Esq Ralph T Lepore Esq Holland amp Knight LLP Holland amp Knight LLP One Financial Plaza Suite 1800 Ten St James Avenue Providence RI 02903 Boston MA 02116
James T Murphy Esq Mitchell L Lathrop Esq Kelly N Michels Esq Duane Morris LLP Hanson Curran LLP 380 Lexington A venue 146 Westminster Street New York NY 10168 Providence RI 02903
Mark T Nugent Esq Michael F Aylward Esq Michael T Farley Esq Morrison Mahoney amp Miller LLP Morrison Mahoney amp Miller LLP 250 Summer Street One Providence Washington Plaza 6th Floor Boston MA 02201 Providence RI 02903
Lawrence A Nathanson Esq James T McCormick Esq Siegal amp Napierkowski middotMcKenna amp McCormick 220 Lake Drive East 128 Dorrance Street Suite 330 Suite 304 Providence RI 02903 Cherry Hills NJ 08002
Richard W MacAdams Esq Kurt Hiish Esq MacAdams amp Wieck Inc Baach Robinson amp Lewis PLLC 101 Dyer Street Suite 400 1201 F Street Providence RI 02903 Washington DC 20004
Kevin J OConnor Esq Hermes Netburn OConnor amp Spearing PC 111 Devonshire Street Boston MA 02109
I hereby certify that on thet ~~middotofMarch 2004 a copy of the within document was served by flrst class mail
postage prepaid upon the counsel f record listed above
~t~- (1 rl(~~Ypc
56
E-002002006066
- barcode 554688
- barcodetext SDMS Doc ID 554688