Century Indem. Co. v. Liberty Mut. Ins. Co., CA 09-285 S.

708 F.Supp.2d 202

CENTURY INDEMNITY COMPANY, Plaintiff,v.LIBERTY MUTUAL INSURANCE COMPANY, Defendant.

No. CA 09-285 S.

United States District Court D. Rhode Island.

April 27, 2010.

COPYRIGHT MATERIAL OMITTED

James T. McCormick, Esq., McKenna & McCormick, Providence, RI, John L. Altieri, Jr., Esq., Boutin & Altieri PLLC, Fairfield, CT, Lawrence A. Nathanson, Esq., Siegal Napierkowski & Park, Mt. Laurel, NJ, for Plaintiffs.

Ralph T. Lepore, III, Esq., Benjamin M. McGovern, Esq., Michael T. Maroney, Esq., Holland & Knight LLP, Boston, MA, Christopher J. McCarty, Esq., Holland & Knight LLP, Providence, RI, for Defendant.

OPINION AND ORDER

WILLIAM E. SMITH, District Judge.

In an earlier dispute between Emhart Industries, Inc. (“Emhart”) and its insurers arising out of a superfund cleanup, Defendant Liberty Mutual Insurance Company (“Liberty Mutual”) settled with Emhart. Plaintiff Century Indemnity Company (“Century”), another party to the dispute, went to trial against Emhart instead. Century prevailed on the merits, but was held responsible for a judgment of $6 million, because this Court found it was required to pay for Emhart's legal defense in connection with the cleanup. Now, notwithstanding Liberty Mutual's settlement with Emhart, Century seeks contribution from Liberty Mutual for a major portion of the judgment, on the theory that it too bore the obligation to provide a defense. The doctrine of equitable contribution, Century asserts, requires Liberty Mutual to pay its fair share.

The parties have cross-moved for summary judgment on these issues. After hearing oral argument on February 2, 2010, and considering the issues carefully, the Court concludes that Liberty Mutual did have a duty to defend Emhart, for the reasons fully explained below. Nevertheless, the Court believes that Liberty Mutual must be allowed to conduct the discovery it has requested on the issue of equitable contribution.

I. BackgroundA. The EPA Action

This dispute arises out of an enforcement action initiated by the Environmental Protection Agency (“EPA”) pursuant to the Comprehensive Environmental Response, Compensation and Liability Act of 1980 (“CERCLA” or “Superfund”). In 1998, the EPA detected hazardous chemicals at the Centredale Manor Superfund Site (the “Site”) in North Providence, Rhode Island. ( See Def.'s Statement of Undisputed Facts, Dec. 1, 2009 (“Def.'s Facts”) ¶ 22.) Between 2000 and 2003, the agency issued several Administrative Orders to Emhart identifying it as a “potentially responsible party” for cleanup costs under CERCLA. The orders charged that the operations of Emhart's corporate predecessors at the Site had resulted in the release or threatened release of hazardous substances. The documents set forth the following allegations:

• “Hazardous substances were disposed of at the Site as part of former operations of several chemical companies ... and a drum recycler....” (Def.'s Facts ¶ 25.)

• “Emhart is also a successor to liability of several chemical companies which operated at the Site from approximately 1943 to approximately 1971. The chemicals manufactured by these companies included hexachlorophene. The chemical companies also buried drums and other containers at the Site.” ( Id.)

• “[An Emhart predecessor] operated at the Site from approximately 1952 to approximately 1969. [The company's] operations included obtaining 55-gallon drums containing residual chemicals, disposing of certain drum residuals in the soil at the Site and incinerating other drum residuals at the Site.” ( Id.)

• “There is evidence that drums and other waste material may be buried at the property. Drum carcasses were found by EPA in certain areas of the Site. Buried drums and waste material may be leaching contaminants into the Woonasquatucket River.” ( Id.)

• “[H]igh levels of chlorinated solvents ... found at the groundwater/surface water interface in the river indicate migration of contaminants from suspected buried waste near the riverbanks.” ( Id.)

• “Evidence suggests that the operations of the chemical companies and the drum reconditioning facility at the Site resulted in releases and threats of releases of hazardous substances at the Site.” ( Id.)

• In the “Site History” portion of the second Administrative Order, issued in March 2001, the EPA noted that “a major fire in the early 1970s destroyed most of the structures at the Site.” (Pl.'s Statement of Undisputed Facts, Sept. 17, 2009 (“Pl.'s Facts”) ¶ 6.)

In the course of responding to the EPA charges, Emhart incurred substantial legal defense costs.

During various time periods when the Site allegedly became contaminated, Emhart's corporate predecessors purchased insurance coverage from a number of companies, including Century and Liberty Mutual. Liberty Mutual's policy contained a so-called “pollution exclusion,” which appears as boilerplate in many liability policies, that provides as follows:

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

(Def.'s Facts ¶ 27.) Century's policy contained a narrower exclusion for liability arising out of the release of waste products, which disclaimed coverage only for “intentional” or “willful” pollution. ( See id. ¶ 28.)

B. The Emhart Insurance Litigation

In January 2002, Emhart sued Century and Liberty Mutual, along with several of its other insurers, in this Court. Emhart claimed the insurers were obligated, under their respective policies, to pay its costs arising out of contamination at the Site. See generally Emhart Indus., Inc. v. Century Indem. Co., 559 F.3d 57 (1st Cir.2009). The EPA action triggered two aspects of coverage, according to Emhart. First, the policies created a duty to defend Emhart, requiring the insurers to pay the costs of Emhart's legal defense in connection with the EPA proceedings. Second, the policies required indemnification of the cleanup expenses Emhart was ultimately forced to pay pursuant to CERCLA.

Liberty Mutual moved for summary judgment on grounds that it bore no obligation to defend or indemnify Emhart, because of the pollution exclusion. On February 15, 2004, Magistrate Judge Robert W. Lovegreen issued a Report and Recommendation concluding that Liberty Mutual's motion should be denied. ( See Report and Recommendation Emhart v. Home Ins. Co., C.A. No. 02-53 S, Doc. # 220 (D.R.I. Feb. 15, 2004) (hereinafter “R & R”).) In large part, this conclusion rested on the reference to a “major fire” in the EPA documents, as well as evidence regarding the fire that had arisen during discovery:

[B]eginning with the Second Administrative Order by EPA, there was the suggestion of a possibility that a major fire ... may have contributed to the spread of contaminants on the Site and beyond it. Whether such an event would qualify as the “sudden and accidental” occurrence necessary to indicate at least a duty to defend under the Policies, is a question of fact not suitable for resolution at summary judgment.

( Id. at 60.) Liberty Mutual objected to the R & R, but subsequently settled with Emhart's parent company for $250,000 before the Court ruled on the objection. See

Emhart Indus., 559 F.3d at 61.

Century, on the other hand, chose to go to trial. A jury found that Century had no duty to indemnify Emhart under the policy at issue. However, this Court subsequently granted Emhart judgment as a matter of law on its duty to defend claim. The Court found that Century's pollution exclusion did not apply, because the EPA documents did not state that the discharge was “intentional” or “willful.” Therefore, the Court entered judgment against Century. See Emhart Indus., 559 F.3d at 64. Century has since satisfied the judgment and paid more than $6 million in principal and prejudgment interest. ( See “Pl.'s Facts” ¶¶ 19-21.)

Prior to the Court's decision, Century had asserted cross-claims against the other insurers, including Liberty Mutual, for allocation of any defense and indemnity costs determined to be owed to Emhart. After ruling in Emhart's favor against Century, the Court dismissed all cross-claims without prejudice.

C. The Current Lawsuit

Century now renews its claims against Liberty Mutual from the earlier lawsuit, seeking to recover a portion of the judgment paid to Emhart. There are two steps to Century's argument: first, Liberty Mutual had a duty to provide a legal defense to Emhart in connection with the EPA charges under Massachusetts law, which governs Emhart's policies from Liberty Mutual; and second, as a result, Liberty Mutual is liable to Century under Rhode Island law, which governs equitable claims among the parties, pursuant to the doctrine of equitable contribution. According to Century, the doctrine requires Liberty Mutual to cover its share of defense costs by paying Century to offset its liability to Emhart.

II. Liberty Mutual's Duty to Defend

For purposes of whether Liberty Mutual had a duty to defend Emhart, the most critical material facts of this dispute are the substantive assertions contained in the EPA charges against Emhart and the language of Liberty Mutual's policies. There is no dispute about the content of those documents, or that Massachusetts law governs the policies. Furthermore, the parties agree that Liberty Mutual's settlement with Emhart is not relevant to the scope of its duty to defend the company. Thus, resolving the first issue raised by the parties' motions turns entirely on the question of whether Massachusetts law required Liberty Mutual to defend Emhart against the EPA charges.

A. Scope of the Duty to Defend

Under Massachusetts law, an insurer's duty to provide a defense against third-party...