United Technologies Corp. v. American Home Assur.

Page 128

989 F.Supp. 128

UNITED TECHNOLOGIES CORP., Carrier Corporation, and United Technologies Automotive, Inc., Plaintiffs, v. AMERICAN HOME ASSURANCE COMPANY, Defendant.

No. 292 cv 00267 (JBA).

United States District Court, D. Connecticut.

March 31, 1997.

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Bernard Green, Green & Gross, Bridgeport, CT, Special Master.

David B. Zabel, Stewart I. Edelstein, Marci J. Silverman, Stuart M. Katz, Cohen & Wolf, P.C., Bridgeport, CT, Kay M. Brady, Stephen M. Goldman, Carolyn M. Branthoover, Thomas J. Smith, Patrick J. McElhinny, Robert Bruce Allensworth, David F. McGonigle, Keith A. Fabi, Michael G. Zanic, Evan A. Bloch, David T. Fisfis, Diane B. Hopper, Terry Budd, C. Michele Kirk, Peter J. Kalis, David R. Cohen, Mary Beth Collery, thomas M. Reiter, John P. Englert, Michael S. Nelson, Alan W. Tamarelli, Richard W. Hosking, Kirkpatrick & Lockhart, Pittsburgh, PA, for Plaintiffs.

Robert W. Allen, Noble Francis Allen, Tyler, Cooper & Alcorn, New Haven, CT, David A. Silva, Bruce R. Kaliner, Wayne R. Glaubinger, Stuart Cotton, Daniel Markewich, John Mezzacappa, Mitchell S. Cohen, Diana E. Goldberg, Sarah D. Strum, Aaron F. Fishbein, Hilary M. Henkind, Mound, Cotton & Wollan, New York City, for Defendant.

RULING ON PLAINTIFFS' MOTION FOR PARTIAL SUMMARY JUDGMENT AND DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

(Doc Nos. 499, 505)

ARTERTON, District Judge.

I. INTRODUCTION

This environmental insurance coverage action is brought by United Technologies Corporation and its subsidiaries, plaintiffs Carrier Corporation and United Technologies Automotive (collectively, "UTC") against its insurer, American Home Assurance Company ("AH") for breach of contract, breach of the Connecticut Unfair Insurance Practices Act, and breach of the common law duties of good faith and fair dealing. The action is based on AH's failure to provide insurance coverage to UTC for contamination of the soil, groundwater and surface water at eight properties¹. In addition, UTC seeks a declaratory judgment as to coverage at 32 other sites.

The parties are generally in agreement regarding the applicable policy provisions, however, they disagree on many policy interpretation issues. UTC filed a partial motion for summary judgment on several of these policy interpretation issues. AH filed a motion for summary judgment on several defenses and policy interpretation issues.

II. BACKGROUND

UTC designs and manufactures high technology products throughout the world. As a result of its manufacturing operations and hazardous waste disposal practices, the soil, groundwater and/or surface water at several of UTC's plant sites, including City of Industry, California ("COI"), and Windsor Locks, Connecticut ("WL"), have been contaminated.

AH issued three consecutive all-risk property insurance policies to UTC, covering the period from November 17, 1975 to November 1, 1986 (collectively, the "Policies"). The Policies provide coverage for UTC property world-wide. UTC purchased the Policies through its broker, Johnson & Higgins ("J & H"). J & H has offices in Connecticut ("J & H CT") and New York ("J & H NY").

In its First Amended Complaint, UTC alleges that, in accordance with the Policies, AH must compensate UTC for the soil, groundwater and surface water contamination at WL and the groundwater and soil contamination at COI. Specifically, UTC alleges AH breached the Policies by failing to reimburse UTC for the expenses incurred while investigating, remediating and monitoring the contamination. UTC alleges that AH's failure to pay UTC's claim is a breach of contract. Further, UTC contends that AH's claims handling conduct and refusal to pay the claims constituted a breach of the duties of good faith and fair dealing, and violated the Connecticut Unfair Insurance Practices Act ("CUIPA").

A. Windsor Locks

Since the 1950s, UTC has designed and manufactured air and spacecraft control systems at WL. In addition, UTC operated an industrial waste treatment plan at WL from 1953 through 1992. As a result of long term hazardous waste disposal practices and manufacturing operations, the soil, groundwater and surface water at WL have been contaminated by chromium, volatile organic compounds ("VOCs") and polychlorinated biphenyls ("PCBs").

The contamination was the result of a variety of practices and operations in several locations throughout the WL property. Some of the sources of the contamination include:

1. From 1953 to 1970, chromium leaked from a concrete, underground storage tank. In August, 1970, the leak was discovered and the tank was repaired;

2. From 1975 to 1982, chromium and VOCs were released when UTC began consolidating all of the drums used to store hazardous material. During this time, the storage drums were accidentally dropped, knocked over, and punctured by forklifts;

3. Beginning in the 1950s, chromium and VOCs were released from drums which were stored outside for future use or removal by scrap metal dealers;

4. From the early 1950s through 1968, VOCs and PCBs were released when UTC allowed part of the WL property to be used for fire training exercises which involved the controlled burning of waste oils, solvents and fuels;

5. From the 1950s through the 1970s, VOCs and PCBs were released as a result of UTC's handling and disposal practices, including the disposal of waste solvents and metal hydroxide sludge by burial or direct release into sandy soil or a natural ravine;

6. From the 1950s through the 1960s, repeated pump seal failures caused PCBs to be released into the soil.

Despite these hazardous practices, UTC claims it was unaware that its land was contaminated until October, 1979, when a tornado struck Windsor Locks, Connecticut. Soon thereafter, residents located south of the WL property complained of problems with their water. Consequently, from May through August 1980, the town of Windsor and the Connecticut Department of Health collected samples from residential wells and discovered that several of the wells were contaminated with VOCs. Prompted by this discovery, the Connecticut Department of Environmental Protection ("CTDEP") issued order number 2925, dated November 4, 1980, requiring UTC to (i) investigate the extent and nature of the groundwater contamination; (ii) provide treatment and/or removal of contaminated groundwater and soil; and (iii) investigate and implement any improvements to chemical storage and handling areas.

As a result of this investigation, UTC discovered chromium and VOC contamination migrating from its property to the south. In compliance with Order No. 2925, UTC attempted to remediate the contamination by removing 127 buried drums and the soil surrounding the drums. In addition, UTC installed test wells to evaluate onsite sources of contamination.

After further investigation, the CTDEP issued two additional clean up orders. Order No. HM-160 dated May 14, 1984, required UTC to close its hazardous waste surface impoundments and implement a groundwater monitoring program. Order No. HM-170 dated May 31, 1984, required UTC to (i) investigate the extent and degree of contamination resulting from the disposal of hazardous waste at an inactive landfill sludge disposal area; and (ii) prepare a comprehensive hydrogeologic and engineering report explaining the extent and degree of contamination resulting from the landfill and identifying remedial measures necessary to control the contamination.

On April, 11, 1986, UTC gave its liability insurer, Liberty Mutual, written notice of a potential claim at WL. However, UTC admitted in an earlier proceeding that Liberty Mutual received actual notice of the CTDEP orders no later than July 27, 1982, during an environmental audit of the WL site. See Plaintiff's Pretrial Statement, United Technologies Corp. v. Liberty Mutual Ins. Co., No. 87-7172 (Mass.Super.Ct. August 3, 1993).

On August 8, 1986, UTC entered into Consent Order No. 4402 with the CTDEP. Pursuant to this Order, UTC was required to investigate the extent of groundwater and surface water contamination and provide treatment, containment and/or removal of contaminated groundwater and soil as necessary to eliminate or minimize existing groundwater contamination.

UTC gave AH notice of the loss and damage at the WL site, at the earliest, on December 24, 1987, when it served AH with a complaint naming it and numerous other insurance companies as defendants. United Technologies Corp. v. Liberty Mutual Insurance Co., No. 87-7172 (Mass.Sup.Ct.1987).²

On August 18, 1989, the United States Environmental Protection Agency ("EPA") executed a Consent Agreement and Order RCRA 1076. In accordance with this order, UTC agreed to evaluate the nature and extent of the hazardous waste releases at WL and to conduct a corrective measures study. As a result of these investigations, UTC has taken remedial action at WL, including the preparation of numerous site assessment reports, work plans, testing and analysis of the contaminated property and excavation and disposal of contaminated soil and building materials.

B. City of Industry

UTC manufactured air conditioning and heating products at the COI facility from 1979 to 1992. The principal substance at issue in plaintiff's insurance coverage claim at COI is perchloroethylene (PCE).³ PCE is a degreasing agent utilized by UTC in its manufacturing process to degrease and clean metal parts. Between November 1984 and April 1985, PCE spilled from a degreaser into a below-ground sump located beneath the degreaser system. On or about April 24, 1985, UTC discovered that corrosion-caused holes in the sump had allowed the PCE to discharge into the soil and groundwater.

UTC notified its liability insurer, Liberty Mutual, of the loss on May 17, 1985. On March 7, 1986, the California Regional Water Quality Control Board issued Cleanup and Abatement Order No. 86-1, which required UTC to "clean up and abate the effects of PCE discharge to...