Snydergeneral Corp v. Great American Ins , 133 F.3d 373 ( 1998 )

UNITED STATES COURT OF APPEALS
For the Fifth Circuit
No. 96-10658
SNYDERGENERAL CORP.
Plaintiff-Appellant,
VERSUS
CONTINENTAL INS. CO. A New Hampshire Corp, ET AL,
Defendants,
GREAT AMERICAN INSURANCE COMPANIES, an Ohio Corp.; UNITED STATES
FIRE INSURANCE COMPANY, a New York Corp.,
Defendants-Appellees.
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SNYDERGENERAL CORP.
Plaintiff
VERSUS
NORTHBROOK PROPERTY & CASUALTY INSURANCE CO.,
Defendant
Appeal from the United States District Court
for the Northern District of Texas
February 2, 1998
Before JOLLY, DUHÉ, and PARKER, Circuit Judges.
DUHÉ, Circuit Judge:
Appellant SnyderGeneral sued its insurers, Great American and
U.S. Fire, for costs incurred in cleaning up groundwater
contaminated with TCE. Appellees denied coverage on the basis of
the pollution exclusion clauses in the policies and successfully
moved for summary judgment. The district court found that not only
did the exclusion preclude coverage but also that Appellant was an
habitual polluter. We agree that the pollution exclusion clause
precludes coverage.
I
In 1984, SnyderGeneral merged with McQuay, a Minneapolis
company that also manufactured heating and air conditioning
equipment. McQuay changed its name to SnyderGeneral.
McQuay owned a plant in California which it operated from
1961-1974.1 The plant used TCE as a vapor degreasing solvent to
remove oil from air conditioning coils as they moved on a conveyer
belt, through a degreaser. A still attached to the degreaser
recycled the TCE by vaporizing it to separate it from the oil. The
TCE was then condensed as clean TCE and piped back into the
degreaser. Former employees testified that they also used TCE to
clean oil off their hands, to wipe oil from the equipment, and to
clean oil from the floor. The plant utilized a drain system to
collect any liquid that spilled onto the floor. The drains emptied
into four or five dry wells at the west end of the property.
In the late 1960's there was a large, accidental spill of TCE
at the plant. An employee who witnessed the spill stated that an
automatic float in a still connected to the degreaser stuck and
caused TCE to overflow into a floor drain.2
1
In 1976, SSP Industries leased the plant from McQuay. SSP
later purchased the plant in 1979.
2
Appellees dispute whether the spill actually occurred;
however, for purposes of this opinion, we assume arguendo that it
2
Three years after merging with McQuay, SnyderGeneral received
notice from Stanley-Bostitch, Inc. which operated a plant next door
to and down gradient from the McQuay plant, that the California
Regional Water Quality Control Board had ordered Stanley-Bostitch
to clean up the contaminated groundwater. The notice also alleged
that the primary source of contamination was under and in the
vicinity of the former plant site.
Two months later, the California Department of Health Services
sent SnyderGeneral a letter requesting that SnyderGeneral provide
information concerning McQuay’s activities at the plant.
SnyderGeneral received a similar letter from the California
Regional Water Quality Control Board.
As a result, SnyderGeneral notified both its insurers, Great
American and U.S. Fire, of the claims related to the former plant
and to advise them of an opportunity to settle with Stanley-
Bostitch. SnyderGeneral stated that the pollution resulted from
the large TCE spill. Both policies contain a pollution exclusion
clause which excluded property damage or liability
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
water course or body of water; but this exclusion
does not apply if such discharge, dispersal, release
or escape is sudden and accidental.
U.S. Fire never responded to SnyderGeneral’s letter nor did it
conduct an investigation of SnyderGeneral’s claims. Great American
did.
3
requested additional information about the claim which
SnyderGeneral provided; however, Great American sent no further
responses and never investigated. SnyderGeneral sued asserting
breach of contract and the duty of good faith and fair dealing and
violation of the Texas Insurance Code.3 Great American and U.S.
Fire successfully moved to dismiss on summary judgment all of
SnyderGeneral’s claims.4 SnyderGeneral appeals.
II
A. STANDARD OF REVIEW
We review grants of summary judgment de novo. Rizzo v.
Children’s World Learning Ctr., Inc., 84 F.3d 758, 761 (5th Cir.
1996); Brock v. Charter, 84 F.3d 726, 727 (5th Cir. 1996). Under
Rule 56(c), a court will grant summary judgment when the pleadings
and evidence show that there is no genuine issue as to any material
fact.
B. ANALYSIS
Because this is a diversity case, the district court had to
determine which state law applies to each insurer. The parties
agreed that Texas law applies to U.S. Fire, and the district court
found that Minnesota law applies to Great American. SnyderGeneral
does not dispute this finding; therefore, we apply the laws of
Texas and Minnesota to U.S. Fire and Great American, respectively.
3
Because we hold that the pollution exclusion clause precludes
coverage of the large TCE spill, we do not address the other
claims.
4
SnyderGeneral originally sued eleven of its insurers, but it
settled with all except Great American and U.S. Fire.
4
As the district court noted, the threshold issue is whether
the large TCE spill comes within the “sudden and accidental”
exception to the pollution exclusion clause.
1. Great American
Great American argues that whether the large spill occurred or
not is unimportant under Minnesota law. Rather, to determine
whether a discharge was sudden and accidental, the issue is how the
contaminants entered the groundwater. We agree.5
In Board of Regents of the Univ. of Minn. v. Royal Ins. Co. of
America, 517 N.W.2d 888 (Minn. 1994), the appellant had installed
in a building fireproofing material that had released asbestos
fibers. The appellant had sued its insurance companies demanding
the cost of removing the asbestos from the building. Id. The
appellant argued that the release of asbestos fibers over a period
of twenty years was “sudden” because the release was unexpected.
Id. at 891. In determining how to interpret “sudden”, the
Minnesota Supreme Court noted that “sudden” and “accidental” were
used together; therefore, if “sudden” meant “unexpected” then the
term “accidental” would be redundant. The word must have a
temporal element; therefore, a “sudden” release could not be
5
This is not to suggest that the relevant discharge or
“release point” always coincides with the “occurrence” of actual
damage or injury. See, e.g., Hartford Accident & Indem. Co. v.
U.S. Fidelity & Guar. Co., 962 F.2d 1484, 1491 (10th Cir. 1992)
(“We have found almost universal agreement among federal courts
applying the pollution exclusion that it is the discharge which
must be sudden and accidental to qualify for coverage, not the
pollution damage.”). As we discuss further below, however, under
the unique facts of this case, the two events do coincide.
5
gradual. Id. at 892. The Court also noted that “sudden and
accidental” modified “discharge”. As a result “sudden and
accidental” referred to the escape of the polluting waste. Id.
SnyderGeneral contends that the degreaser tank contained the
TCE so the relevant escape is the spill. SnyderGeneral relies
heavily on SCSC v. Allied Mutual Ins. Co., 515 N.W.2d 588 (Minn.
Ct. App. 1994), aff’d in part, rev’d in part, 533 N.W.2d 603 (Minn.
1995), to bolster its argument. There, a wholesale distributor of
perc, a dry cleaning chemical, was ordered to clean up perc
contaminated ground water. The distributor then wrote to its two
insurance companies seeking coverage. The distributor claimed that
it fell outside of the pollution exclusion clause because the
pollution was the result of one large spill. A driver of one of
the perc delivery trucks was filling the tank when it overfilled
and sprayed into his eyes. While the driver was helped to an
emergency shower, perc continued to flow out for two or three
minutes. The perc ran out of the facility and into the parking
lot. Soon thereafter, there was a heavy rain shower which washed
the perc into the ground water. As here, the distributor brought
suit to force the insurance companies to pay the clean up costs.
The case went to trial and the jury found that the spill was sudden
and accidental. Id. at 592-94.
The insurers, relying on several landfill cases, argued that
the release could not have been sudden as a matter of law because
the relevant release occurred when the pollutants leaked out of the
soil and into the groundwater. The appeals court disagreed stating
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a court determines suddenness by the pollutant’s release from a
state of containment not by the time that elapses before the
pollution was discovered. The court distinguished the landfill
cases stating that landfills were meant to hold pollutants in
suspension above the groundwater; the distributor, however, made no
attempt to store perc in the soil above groundwater.
SnyderGeneral argues that here it, too, made no effort to
store TCE in soil above the groundwater. Like SCSC, the relevant
escape is from the storage tank. Moreover, the speed of migration
of the TCE is irrelevant because the contaminant is not emerging
from a state of confinement since dry wells were not meant to
contain. We find SnyderGeneral’s reliance upon SCSC unpersuasive
for two reasons.
First, Board of Regents is the most recent statement of the
law. Moreover, because it is a Minnesota Supreme Court case, it
controls our reasoning. Therefore, to the extent that Board of
Regents contradicts SCSC, we must reject SCSC. The Minnesota
Supreme Court states that “discharge” means the escape of waste
from a particular place. Board of Regents, 517 N.W.2d at 892. We
understand this to mean that courts are to focus on the point at
which the polluting waste escapes from its intended place of
containment. Here, the record shows that SnyderGeneral intended to
contain TCE in the dry wells because the dry wells were designed to
allow the TCE to make its way from the plant floor to the dry
wells--the ultimate place of containment; therefore, we hold that
the relevant release is from the dry wells.
7
Second, SCSC is, in any event, distinguishable. In SCSC, it
was the rainstorm that allowed the perc to get into the
groundwater, and the rainstorm was something the distributor had no
control over. Here, SnyderGeneral had control over how the TCE
escaped. As the diagram of the plant shows, the purpose of the
floor drain system was to catch any spills and drain them into the
dry wells which then allowed the TCE into the seepage pit. The
record also reveals that immediately after the large spill of TCE
from the degreaser tank, SnyderGeneral knew about the spill and
could have taken steps to clean it up from the floor or by pumping
or digging it from the dry wells. Its failure to do so
demonstrates that, even if the tank was the initial place of
containment for large-volume TCE, the dry wells became the ultimate
intended place of containment. Thus, there is no genuine issue of
material fact concerning whether SnyderGeneral intended to contain
the pollutants in the dry wells.
The remaining question is whether the release was “sudden and
accidental”. Under the policy terms, the discharge of TCE from the
dry wells must have been both sudden and accidental to qualify for
coverage. SnyderGeneral cannot claim that the discharge was
accidental. Under Minnesota law, “accidental” means “unexpected”.
Board of Regents, 517 N.W.2d at 892. While the overflow of TCE
from the tank might well have been unexpected, the overflow is
irrelevant. As explained above, the relevant discharge is from the
dry wells so we examine whether that discharge was accidental. The
record shows that the purpose of the dry wells was to leach waste
8
liquid into the surrounding environment. SnyderGeneral cannot
characterize this discharge as unexpected. The drain system acted
exactly as it was designed to do. Because the discharge was not
accidental, we need not determine whether it was sudden.
Therefore, we hold that the district court did not err in granting
summary judgment in favor of Great American.
2. U.S. Fire
To determine what the relevant release is under Texas law, we
look to Union Pacific Resources Co. v. Aetna Casualty & Surety Co.,
894 S.W.2d 401 (Tex. App.--Fort Worth 1994, writ denied). There,
the Texas Court of Appeals held in a landfill case that the
subsequent escape of pollutants from the disposal site was the
critical inquiry for determining whether the pollution exclusion
clause precluded coverage. Id. at 404.6 The record shows that
purpose of the dry wells was to drain out the liquid from the floor
drains. Therefore, we hold that under Texas law, the relevant
discharge is from the dry wells. Moreover, since the dry wells
were designed to leach out liquid, SnyderGeneral expected the waste
to discharge into surrounding environment. Thus, the discharge was
not accidental. Again, we hold that the district court did not err
in granting summary judgment in favor of U.S. Fire.
6
Union Pacific, like the instant case, involved circumstances
in which the relevant discharge under the pollution exclusion
clause coincided with the occurrence triggering coverage under the
policy. See id. at 404 (“We hold where material has been deposited
in a place which was believed to serve as a landfill for such
waste, the polluting ‘occurrence’ is the ‘discharge, dispersal,
release, or escape’ . . . of toxic material into the
environment.”).
9
CONCLUSION
For the above reasons, we AFFIRM the district court’s grant of
summary judgment.
10