Travelers Cas. & Sur. Co. v. Providence Washington Ins. Co.

809 F.Supp.2d 7

TRAVELERS CASUALTY AND SURETY COMPANY, INC., Plaintiff,

v.PROVIDENCE WASHINGTON INSURANCE COMPANY, INC., Defendant.

No. C.A. 10–147 S.

United States District Court, D. Rhode Island.

Aug. 16, 2011.

Jason C. Preciphs, R. Kelly Sheridan, Roberts, Carroll, Feldstein & Peirce, Inc., Providence, RI, John A. Nadas, Robert A. Kole, Choate, Hall & Stewart LLP, Boston, MA, for Plaintiff.

Todd D. White, Katy A. Hynes, Adler, Pollock & Sheehan, PC, Providence, RI, for Defendant.

OPINION AND ORDER

WILLIAM E. SMITH, District Judge.

This case calls upon this Court, once again, to elucidate an insurer's duty to defend under Rhode Island law. The matter is before the Court on the parties' cross-motions for summary judgment. For the reasons explained below, Plaintiff's motion is denied and Defendant's motion is granted.

I. Introduction

Plaintiff Travelers Casualty and Surety Company, Inc. (“Travelers”) and Defendant Providence Washington Insurance Company, Inc. (“PWIC”) were both insurers of New England Container Company (“NECC”). Emhart Industries, Inc. (“Emhart”) filed two suits against NECC,¹ alleging that NECC is liable for damages resulting from its operation of a facility for reconditioning steel drums on the Centredale Manor Superfund Site. NECC tendered the Emhart suits to Travelers and PWIC for defense. Travelers agreed to contribute to NECC's defense pursuant to a reservation of rights, and has subsequently incurred substantial costs defending NECC. PWIC refused to contribute to defending the Emhart actions or reimburse Travelers for any of the defense costs it has incurred. Travelers has brought this action to compel PWIC to contribute to NECC's defense in the Emhart action. PWIC contends that it has no duty to defend NECC.

The parties' cross-motions for summary judgment place three main issues in dispute: (1) whether Travelers should be permitted to defend NECC pursuant to a reservation of rights and then pursue contribution from PWIC; (2) whether the charging documents in the Emhart action trigger PWIC's duty to defend; and (3) whether the “pollution exclusion” in the PWIC insurance policy absolves PWIC from a duty to defend NECC in the Emhart action. The Court will address them in turn.

II. Analysis

A. Seeking Contribution After a Reservation of Rights

PWIC contends that because Travelers is defending NECC subject to a reservation of rights, it

has done nothing more than advance the costs of defense to NECC, unless and until such time as Travelers elects to cease defending NECC, or unless and until such time as a court determines that Travelers owes NECC no duty to defend. In the event that a determination is made that Travelers owes NECC no duty to defend, Travelers may seek to and obtain a refund of the defense costs it advanced under its reservation of rights. Therefore, Travelers has suffered no damages at this time, and any claim for contribution against PWIC is not ripe at this time.

(PWIC's Mem. in Supp. of Summ. J. 9–10, ECF No. 15.)

This argument amounts to a categorical rule that an insurer may not defend an insured pursuant to a reservation of rights and then seek contribution from another insurer but must either defend the insured unconditionally or forego all rights to contribution from other insurers. PWIC did not cite any authorities in its submissions to support this argument, but it did point to GRE Ins. Grp. v. Metro. Boston Hous. P'ship, Inc., 61 F.3d 79 (1st Cir.1995), at oral argument. There is only one sentence in that decision that even remotely touches on the issue here, and it is this: “As the Camp Dresser court indicated, an insurer in this position may ‘undertake the defense of the underlying action with a reservation of rights with respect to the excludable claims' or it may share respective defense responsibilities with co-counsel. 30 Mass.App.Ct. at 323 n. 4, 568 N.E.2d at 634 n. 4.” GRE Ins., 61 F.3d at 85. This does not support PWIC's proposed rule. It simply says, following the cited footnote in Camp Dresser, that an insurer faced with a lawsuit, some of whose claims it has a duty to defend and some of whose claims it arguably may not, may defend pursuant to a reservation of rights or may share defense responsibilities with another insurer. It nowhere states that, if an insurer defends pursuant to a reservation of rights, it may not later turn around and seek contribution from other insurers.² PWIC has pointed to no authority, and the Court has found none, that makes a distinction for the purposes of seeking contribution between insurers who unconditionally defend the insured and insurers who do so subject to a reservation or rights.

PWIC's proposed rule is not only unsupported in the law, it would also create perverse incentives. It would incentivize insurers to refrain from defending their insured when in doubt as to whether a duty to defend exists and to wait it out and hide behind other insurers. In short, the fact that Travelers agreed to defend NECC subject to a reservation of rights does not eviscerate its right to seek contribution from PWIC.

B. Triggering The Duty To Defend

The Emhart complaint alleges that PWIC insured NECC from 1982 to 1985 and that NECC operated a facility for reconditioning steel drums on the Centredale Manor Superfund Site “[f]rom approximately 1952 until the early 1970s.” (Emhart Complaint ³ ¶¶ 10, 25 (Ex. 4 to Travelers' Mot. for Sum. J., ECF No. 13).) ⁴ Picking up on these allegations, PWIC argues that it cannot be held to a duty to defend NECC when its policy period did not correspond to the period during which the alleged environmental damages occurred.

Under Rhode Island law, property damage triggers insurance coverage at the time when the damage (1) manifests itself, (2) is discovered, or (3) in the exercise of reasonable diligence is discoverable. Textron, Inc. v. Aetna Cas. & Sur. Co., 754 A.2d 742, 746 (R.I.2000) (hereinafter “ Textron–Wheatfield ”); CPC Int'l, Inc. v. Northbrook Excess & Surplus Ins. Co., 668 A.2d 647, 649, 650 (R.I.1995). In this case, there is no question that the damages were not manifested or discovered during the period between 1982 and 1985. The only question is whether they were reasonably discoverable during that time.

Discoverability is a three-pronged inquiry: “ ‘discoverable in the underlying exercise of reasonable diligence’ mean[s] that (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.” Textron–Wheatfield, 754 A.2d at 745 (internal citations omitted). The trigger test is not to be confused with the discoverability test. The policy is triggered when either one of three conditions—one of which is discoverability—is satisfied. Discoverability itself is satisfied only if all of the three distinct conditions are met. The first of these conditions is that the property damage must have occurred during the policy period. It is important to keep in mind, as both parties often fail to in their briefs, that this requirement, i.e., number (1) of the discoverability elements, is distinct from numbers (1)-(2) of the trigger conditions and from numbers (2)-(3) of the discoverability elements.

Under the pleadings test, to establish that PWIC has a duty to defend NECC in the Emhart action, Travelers must show that the Emhart complaint establishes the possibility that (1) the damage occurred between 1982 and 1985, (2) the damage was capable of being detected at some point between 1982 and 1985, and (3) NECC had reason to test for the property damage between 1982 and 1985.

The second and third elements of this test are probably met here, because the Emhart complaint leaves open the possibility that PWIC had reason to test for the property damage and that it was capable of being detected during the relevant period. See Emhart Indus., Inc. v. Home Ins. Co., 515 F.Supp.2d 228, 238 (D.R.I.2007), aff'd, Emhart Indus., Inc. v. Century Indem. Co., 559 F.3d 57 (1st Cir.2009) (“Of course, as Century points out, the charging documents are silent with respect to whether dioxin was discoverable at the Site in 1969; it is, therefore, unclear from the face of the documents whether the alleged contamination was caused by an ‘occurrence.’ But under Rhode Island law, neutral or ambiguous allegations do not foreclose an insurer's duty to defend.... Under our rule that doubt must be resolved against the insurer.”) (citations, quotation marks, and brackets omitted). Specifically, PWIC's argument that the technology for the detection of dioxin was not in place from 1982 to 1985 rings hollow in view of this Court's finding that the damage was detectable during the years 1968 to 1970, the policy period at issue in Emhart, 515 F.Supp.2d at 238–39.

However, even if the second and third elements of discoverability are satisfied, the difficulty in this case arises in establishing the first element—that the damage potentially “occurred” between 1982 and 1985. In Emhart, the applicable policy periods provided coverage for 1968 to 1970 and 1969 to 1970, and the operations took place from 1943 to 1971. 515 F.Supp.2d at 231–32. Thus, there was some overlap between the policy periods and the period of operations, when the property damage allegedly took place. Not so in this case. By 1982, the start date of PWIC's insurance policy, NECC had left the Centredale Manor Site and residential buildings had been erected there. “[T]here is no allegation anywhere in Emhart's Complaint that NECC had any connection with the property in question from 1982–1985, or that NECC continued in its barrel reclamation business at that site.” (PWIC's Statement of Undisputed Facts, ECF No. 16, ¶ 17 (not disputed by Travelers).)

Travelers responds that “Rhode Island courts consistently have found that property damage is potentially discoverable even where the insured no longer owns or conducts operations at the site in...