OneBeacon America Insurance Co. v. Narragansett Electric Co. American Home Assurance Co. , 87 Mass. App. Ct. 417 ( 2015 )

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13-P-1240 Appeals Court
ONEBEACON AMERICA INSURANCE COMPANY vs. NARRAGANSETT ELECTRIC
COMPANY; AMERICAN HOME ASSURANCE COMPANY & others,1 third-party
defendants (No. 1).
No. 13-P-1240.
Suffolk. June 3, 2014. - June 3, 2015.
Present: Kantrowitz, Hanlon, & Carhart, JJ.
Conflict of Laws. Limitations, Statute of. Practice, Civil,
Summary judgment, Statute of limitations, Dismissal,
Judicial discretion, Attorney's fees. Insurance,
Comprehensive liability insurance, Excess Liability
Insurance, Construction of policy, Insurer's obligation to
defend, Defense of proceedings against insured, Pollution
exclusion clause, Disclaimer of liability. Indemnity.
Contract, Insurance, Indemnity, Construction of contract,
Parties, Performance and breach. Real Property,
Environmental damage. Jurisdiction.
1
Century Indemnity Company; Certain Underwriters at
Lloyd's, London and Certain London Market Insurance Companies;
National Union Fire Insurance Company of Pittsburgh, PA
(National Union); John Does 1-200; American International
Specialty Lines Insurance Company (AISLIC); and Chartis
Specialty Insurance Company (Chartis). During the course of the
proceedings below, AISLIC was succeeded by Chartis. Subsequent
to the proceedings, American Home Assurance Company, Chartis,
and National Union were apparently succeeded by American
International Group, Inc. For the sake of clarity, we refer to
the parties as their names appear in the pleadings.
2
Civil action commenced in the Superior Court Department on
July 25, 2005.
Motions for summary judgment regarding choice of law issues
were heard by Allan van Gestel, J., and a motion for
reconsideration was considered by him; motions for summary
judgment were heard by Margaret R. Hinkle, J., and Peter M.
Lauriat, J.; the remaining issues were tried in two phases
before them; and entry of final judgment was ordered by Lauriat,
J.
Jay T. Smith, of the District of Columbia (A. Hether Cahill
with him) for Narragansett Electric Company.
Kevin J. O'Connor for OneBeacon America Insurance Company.
David B. Chaffin for Century Indemnity Company.
Eileen T. McCabe, of New York, & John T. Harding, for
Certain Underwriters at Lloyd's, London, & others, were present
but did not argue.
Michael F. Aylward, for American Home Assurance Company &
others, was present but did not argue.
KANTROWITZ, J. To put this rather dense environmental case
in perspective, pollution in some of the affected areas started
in the mid-1800s, and the first of several insurance policies at
issue was written in 1945. Today, we are asked to rule on the
propriety of the allowance of numerous summary judgment motions
and the verdicts in three separate, lengthy jury trials.2
I. Background. The plaintiff, OneBeacon America Insurance
Company (OneBeacon), brought this declaratory judgment action in
July, 2005, against its insured, Narragansett Electric Company
(NEC), seeking a determination that OneBeacon had no duty to
2
We also review the conversion of the voluntary dismissal
without prejudice of certain of Narragansett Electric Company's
counterclaims to a dismissal with prejudice.
3
defend or indemnify NEC for damages associated with
environmental contamination at several sites, formerly utilized
by NEC's predecessors for manufactured gas plant operations and
waste disposal. NEC counterclaimed for breach of contract and
declaratory relief, adding other insurers that had issued
primary and excess liability insurance policies to NEC for the
years in question.
The majority of NEC's claims were dismissed on summary
judgment as either time-barred or as not covered under the
policies. NEC appeals from those dismissals. In the three jury
trials, NEC prevailed on its remaining claims, against Century
Indemnity Company (Century) and Certain Underwriters at Lloyd's,
London and Certain London Market Insurance Companies
(collectively, London), who cross-appeal. We affirm in part and
reverse in part.
The issues before us are numerous and complex, involving
Massachusetts procedure and Rhode Island substantive law. The
substantive aspects of the appeal and cross appeals are fact-
intensive and involve Rhode Island law. We address them by way
of an unpublished memorandum and order pursuant to our rule
1:28, which accompanies this opinion.3 Our discussion here
focuses principally on NEC's appeal from the denial of certain
3
See OneBeacon America Ins. Co. v. Narragansett Elec. Co.
(No. 2), 87 Mass. App. Ct. (2015), issued this day.
4
claims as untimely under Massachusetts law. We consider the
issue of timeliness and the accrual of claims in the context of
insurance coverage for environmental contamination.4
A. The parties and policies. NEC is a Rhode Island
utility company with its principal place of business in
Providence. It is successor to the Blackstone Valley Electric
Company (BVEC), and the Blackstone Valley Gas & Electric
Company.5 The sites involved in this case were used by NEC's
predecessors for manufactured gas plants and electric
operations, and for waste disposal, from the mid-1800s until the
1980s. Soil and groundwater contamination were eventually
discovered at those sites, prompting governmental and private
actions against NEC. NEC sought defense costs and
indemnification from a number of insurers that issued primary
and excess policies to NEC for policy periods between 1945 and
1986.
OneBeacon, through its predecessors, issued thirteen
primary comprehensive general liability policies to NEC,
covering the period of October, 1972, to January 1, 1985. These
policies provided for defense costs and indemnification for
4
The cross appeals also raise issues involving accrual in
connection with one of the jury trials, which we address in our
rule 1:28 memorandum and order.
5
For the sake of clarity, we refer to the companies by
their current name, NEC.
5
property damage in actions brought against the insured by third
parties.
Predecessors of Century issued both primary and excess
coverage to NEC. The primary policy was for January 1, 1985, to
January 1, 1986, and similarly provided for defense costs and
indemnification. The excess policies were for July 8, 1949, to
May 1, 1965, and provided indemnification coverage in excess of
retained limits as specified in the policies. Excess policies
were also issued by American Home Assurance Company (American
Home), for June 1, 1973, to June 1, 1985,6 and by London, for
March 1, 1945, to June 1, 1968.
B. The sites, response actions, and notices. Of the eight
involved sites, seven are located in Rhode Island; the remaining
site is located in Massachusetts and Rhode Island.7 A Superior
Court judge (first judge) divided the sites into two phases for
litigation purposes.8
6
AISLIC and National Union, related entities of American
Home, issued pollution legal liability (PLL) policies to NEC as
well. Chartis is the successor to AISLIC.
7
While we could speculate why redress was not sought in the
State with the greatest number of affected sites, we do not.
8
On November 19, 2007, the judge ordered the parties to
select two or three sites "to be representative sites for the
purposes of all further discovery and trial in the initial phase
of this action."
6
1. Phase I. The parties jointly stipulated to the
selection of the "Tidewater" and "Lawn Street" sites for Phase
I.9
a. Tidewater. The Tidewater site is located in Pawtucket,
Rhode Island, and was formerly used as a manufactured gas plant
and power plant. On October 28, 1986, the Rhode Island
Department of Environmental Management (RIDEM) notified NEC that
contaminated waste materials had been found at the site and
requested that NEC construct a barrier to prevent public access
to the contaminated area pending investigation. In 1987, NEC
forwarded the RIDEM correspondence to National Union Fire
Insurance Company of Pittsburgh, PA (National Union), and
Century. On September 12, 1995,10 RIDEM issued a "Letter of
Responsibility" (LOR) to NEC, asserting that NEC was a
responsible party for alleged releases of certain contaminants
and demanding that NEC undertake a remedial investigative work
plan at its own expense. The LOR set forth enforcement actions
and penalties for failure to comply. NEC agreed to the LOR on
9
A second Superior Court judge handled the motion practice
with respect to the Phase I sites, and also presided over a jury
trial concerning the existence and terms of six lost London
policies. In addition, she subsequently presided over a jury
trial regarding the unresolved questions concerning the Lawn
Street site. A third Superior Court judge presided over a jury
trial with respect to the issues not resolved by summary
judgment for the Tidewater site.
10
The reason for the lengthy delay is unclear.
7
September 22, 1995, and on April 17, 1996, NEC submitted a draft
of the requisite plan to RIDEM.
On October 5, 1995, NEC notified OneBeacon, American Home,
Century, and London of the Tidewater LOR and demanded defense
costs and indemnification. On November 15, 1995, Century
notified NEC that it could not find the 1985 policy and was
reserving its rights. On December 27, 1996, American Home
disclaimed coverage as to its excess policies that did not
provide coverage for pollution legal liability (PLL). On June
14, 2001, American Home disclaimed coverage as to its PLL
policies as well. On March 18, 1996, and again on October 14,
1998, OneBeacon disclaimed coverage, and on March 25, 1996,
London disclaimed as to its duty to defend as an excess carrier,
and reserved its rights as to indemnification.
b. Lawn Street. The second site selected, Lawn Street, is
located partially in Attleboro, Massachusetts, and partially in
Cumberland, Rhode Island, and was formerly a sand and gravel pit
owned by a third party. NEC disposed sulfur-containing oxide
box wastes from Tidewater at Lawn Street. On November 21, 1986,
the Massachusetts Department of Environmental Quality
Engineering (DEQE)11 sent NEC a "Notice of Responsibility" (NOR)
11
The Department of Environmental Protection is the
successor agency to the Department of Environmental Quality
Engineering. See St. 1989, c. 240, § 101.
8
pursuant to G. L. c. 21E, for the presence of contaminants at
Lawn Street. In April, 1987, NEC notified OneBeacon of the NOR
regarding Lawn Street. On October 23, 1987, NEC entered into an
administrative consent order with DEQE that required NEC to
prepare and implement site investigation plans. Subsequently,
on September 13, 1996, NEC entered into an amended
administrative consent order, agreeing to comply with the
requirements of the Department of Environmental Protection (DEP)
for remediating the site.
On February 29, 1996, NEC demanded coverage from American
Home. On December 27, 1996, American Home disclaimed coverage
as to its non-PLL policies and reserved its rights as to the PLL
policies; on June 14, 2001, American Home disclaimed coverage
under the PLL policies as well. On May 27, 1998, NEC notified
OneBeacon of the amended administrative consent order for Lawn
Street, and on October 14, 1998, OneBeacon disclaimed coverage.12
12
On June 8, 2001, London disclaimed any duty to defend, as
an excess insurer, and reaffirmed its reservation of rights
regarding coverage. London eventually denied coverage based on
its position that no covered event took place at Lawn Street
during the policy period. On March 31, 1997, NEC sought a
coverage determination from Century for Lawn Street. Century
responded that it was investigating the claim under a
reservation of rights.
9
2. Phase II. The Phase II sites are the Pawtucket water
supply board (PWSB), Hamlet Avenue, J.M. Mills, High Street,
Pond Street, and Exchange Street.13
a. PWSB. The PWSB site, located in Cumberland, Rhode
Island, was a waste disposal site that received sulfur-
containing oxide box waste from NEC that allegedly caused a
release of hazardous substances. On September 12, 1995, RIDEM
sent NEC an LOR and demanded reimbursement of $296,381.70 for
remediation. On September 22, 1995, NEC agreed to comply by
remitting the costs to RIDEM, pursuant to an escrow agreement
whereby the funds were held pending resolution of related
litigation.14 On October 5, 1995, NEC notified OneBeacon,
American Home, Century, and London of RIDEM's claims and sought
defense costs and indemnification for responding to the LOR. On
November 15, 1995, Century issued a reservation of rights,
stating that it was trying to locate the relevant policies.
OneBeacon disclaimed coverage on March 18, 1996, and again on
13
The Davies Vocational School site was also litigated in
Phase II. NEC has not appealed from the dismissal of its claims
for Davies Vocational School. The third Superior Court judge
handled the motion practice with respect to the Phase II sites.
14
The escrow agreement provided that NEC would deposit the
funds "to satisfy its obligations to the State pending
resolution of the issue of whether FFC [ferric ferrocyanide] is
a hazardous substance" under State and Federal law, which NEC
was litigating in a related matter.
10
October 14, 1998. On March 25, 1996, London notified NEC that
it had no duty to defend under the excess policies, and reserved
its rights as to any indemnification obligations. On December
27, 1996, American Home denied coverage based on its policy's
"pollution exclusion" provision, and again declined coverage on
June 14, 2001.
b. Hamlet Avenue. The Hamlet Avenue site, located in
Woonsocket, Rhode Island, was used by NEC as a manufactured gas
plant and power plant. Soil and groundwater contamination were
found at the site, and on February 11, 1997, RIDEM issued an LOR
to NEC, directing NEC to develop a site investigation plan. On
February 21, 1997, NEC notified OneBeacon, American Home,
Century, and London, and sought defense costs and
indemnification. On February 25, 1997, NEC settled with RIDEM,
agreeing to pay for the work specified in the LOR, but did not
notify the insurers. Century responded on April 7, 1997,
reserving its rights. Also on April 7, 1997, London informed
NEC that it had no duty to defend under the excess policies and
reserved its rights as to any obligation to indemnify. On
October 14, 1998, OneBeacon disclaimed coverage, and on June 14,
2001, American Home disclaimed coverage as well.15
15
Chartis (as successor to AISLIC) was also notified of the
LOR on February 21, 1997, and disclaimed coverage on November
24, 1997.
11
c. J.M. Mills. J.M. Mills is a former landfill located in
Cumberland, Rhode Island. Between 1967 and 1982, NEC hired a
contractor to carry waste from one of its facilities to J.M.
Mills, which was owned by a third party. The waste included
creosote-covered utility poles. In 2000, the Environmental
Protection Agency (EPA), in the course of investigating
contamination at J.M. Mills, issued a "Request for Information"
(RFI) to NEC. On May 28, 2004, EPA identified NEC as a
potentially responsible party (PRP), and informed NEC that it
was liable for past and future cleanup costs. NEC sought
coverage from OneBeacon, Century, London, and American Home for
expenses in connection with the cleanup of the site. All of the
insurers disclaimed coverage, based either on the pollution
exclusion provisions in their policies, or on the basis that no
triggering event occurred during the policy period.
d. High, Pond, and Exchange Streets. The final three
sites are referred to as High Street, Pond Street, and Exchange
Street, located in Central Falls, Woonsocket, and Pawtucket,
Rhode Island, respectively. When BVEC merged into NEC in 2000,
NEC notified RIDEM of the prior use of those sites as
manufactured gas plants. NEC also notified the insurers on
April 5, 2000, of the potential for governmental claims
12
regarding cleanup of these sites and included the sites in its
counterclaims.16
C. Prior proceedings. OneBeacon filed this action in
Superior Court on July 25, 2005, seeking a declaration that it
has no duty to defend or indemnify NEC for environmental
contamination claims under the thirteen comprehensive general
liability insurance policies issued to NEC between 1972 and
1985. On September 14, 2005, NEC counterclaimed against
OneBeacon for breach of contract and declaratory relief. On
cross motions for summary judgment, the first Superior Court
judge ruled that Rhode Island substantive law would apply in
interpreting the policies. The second judge determined that
Massachusetts's six-year statute of limitations would apply to
the claims, rather than Rhode Island's ten-year statute of
limitations. On October 12, 2007, NEC amended its counterclaim,
adding the other insurers involved in this appeal, and
subsequently filed a second amended counterclaim on July 13,
2009, adding additional insurers and claims, including a claim
against AISLIC for defense costs, and against Century for breach
of its 1985 primary policy.
On the Phase I claims, summary judgment entered for
OneBeacon and American Home on statute of limitations grounds
16
RIDEM had yet to take action with respect to these three
sites at the time of the final hearing in these proceedings.
13
with respect to both Tidewater and Lawn Street.17 On the same
basis, summary judgment entered for Century on NEC's duty to
defend claim as to Tidewater, but NEC's claims against Century
and London for indemnification were tried to a jury, which found
for NEC. As to Lawn Street, summary judgment entered for London
and American Home (see note 17, supra) on their duty to
indemnify, on the ground that no triggering event had occurred
during the policy period. NEC's claims against Century for the
Lawn Street site went to trial, with a jury verdict for NEC.18
NEC also prevailed in a third trial to establish the terms of
six lost policies issued by London.
In the Phase II proceedings, summary judgment entered for
all insurers on NEC's claims for PWSB and Hamlet Avenue, on
statute of limitations grounds. As to J.M. Mills, summary
judgment entered for OneBeacon, Century, and American Home based
on the pollution exclusion clauses in their policies; summary
judgment entered for London (as it had on the Lawn Street
claims) on the basis that no triggering event had occurred
during the policy period. NEC moved to voluntarily dismiss its
17
As to Lawn Street, summary judgment entered for American
Home for the additional reason that no triggering event had
occurred during the policy period.
18
At the beginning of the Lawn Street trial, Century waived
its statute of limitations defense as to the duty to defend, and
trial proceeded on the indemnification claims.
14
claims for High Street, Pond Street, and Exchange Street. The
motion was allowed, conditioned on NEC's paying the insurers'
attorney's fees related to those claims. When the parties
failed to agree on how to proceed as to the fee request, the
judge dismissed the claims with prejudice, omitting the fee
award.
We address in this opinion NEC's appeal from the summary
judgment rulings dismissing its claims as time-barred. We also
address NEC's appeal from the dismissal, with prejudice, of its
claims for High Street, Pond Street, and Exchange Street.19
II. Issues on appeal. A. Statute of limitations. NEC
argues that the judge erred in applying Massachusetts's six-year
statute of limitations rather than Rhode Island's ten-year
period, and that, in any event, its claims were not time-barred
under either provision.
1. Choice of law. Massachusetts provides a six-year
limitations period, under G. L. c. 260, § 2, for breach of
contract claims, while Rhode Island provides a ten-year
limitations period, under R.I. Gen. Laws § 9-1-13. The forum
19
In our accompanying rule 1:28 memorandum and order, we
address Century and London's cross appeals from certain rulings
made by the trial judges at their respective jury trials
(concerning the Phase I sites and the six lost London policies),
as well as NEC's appeal from the allowance of various insurers'
summary judgment motions on other than statute of limitations
grounds (concerning J.M. Mills and Lawn Street).
15
State applies its own conflict of law rules in determining which
State's law governs. See Clarendon Natl. Ins. Co. v. Arbella
Mut. Ins. Co., 60 Mass. App. Ct. 492, 495 (2004). In resolving
a question involving the statute of limitations, Massachusetts
utilizes the choice of law analysis set forth in Restatement
(Second) of Conflict of Laws § 142 (Supp. 1989).20 Nierman v.
Hyatt Corp., 441 Mass. 693, 695 (2004), citing New England Tel.
& Tel. Co. v. Gourdeau Constr. Co., 419 Mass. 658, 663-664
(1995). Where, as here, the forum State has the shorter statute
of limitations, which bars the claim, we apply § 142(1) of the
Restatement, pursuant to which Massachusetts's six-year statute
of limitations governs NEC's claims, unless exceptional
20
Section 142 of the Restatement provides:
"Whether a claim will be maintained against the
defense of the statute of limitations is determined under
the principles stated in § 6. In general, unless the
exceptional circumstances of the case make such a result
unreasonable:
"(1) The forum will apply its own statute of
limitations barring the claim.
"(2) The forum will apply its own statute of
limitations permitting the claim unless:
"(a) maintenance of the claim would serve no
substantial interest of the forum; and
"(b) the claim would be barred under the
statute of limitations of a state having a more
significant relationship to the parties and the
occurrence."
16
circumstances make the result unreasonable. Shamrock Realty Co.
v. O'Brien, 72 Mass. App. Ct. 251, 255-256 (2008). NEC has
identified no reason why Rhode Island was not available as an
alternative forum or why it would have been "extremely
inconvenient" to bring its claims there. See id. at 257.
Specifically noting that NEC could have brought its claims in
Rhode Island rather than awaiting OneBeacon's filing suit,21 the
judge properly ruled that Massachusetts's six-year statute of
limitations for contract actions applied.
NEC asserts that the choice-of-law principles of
Restatement (Second) of Conflict of Laws § 6 (1971), referenced
in the first sentence of § 142, require a different result from
that provided in § 142(1).22 However, we interpret § 142(1) to
21
Indeed, even after OneBeacon filed suit in 2005, NEC
could have filed a suit in Rhode Island and sought dismissal of
the OneBeacon Massachusetts case. As we have noted, seven of
the eight sites at issue were located in Rhode Island.
22
The factors listed in Restatement (Second) of Conflict of
Laws § 6(2) (1971) are:
"(a) the needs of the interstate and international
systems,
"(b) the relevant policies of the forum,
"(c) the relevant policies of other interested states
and the relative interests of those states in the
determination of the particular issue,
"(d) the protection of justified expectations,
17
be consistent with the § 6 factors when the law of the forum
State would bar the claim. See New England Tel. & Tel. Co. v.
Gourdeau Constr. Co., 419 Mass. at 664 n.6 ("[t]he balance of
§ 142 seems to set forth the way in which the principles of § 6
will be implemented"); Shamrock Realty Co. v. O'Brien, 72 Mass.
App. Ct. at 256, quoting from Restatement (Second) of Conflict
of Laws § 142 comment f (Supp. 1989) (the forum State "has a
substantial interest in preventing the prosecution in its courts
of claims which it deems to be 'stale'"). Moreover, NEC's
interpretation would impermissibly render all but the first
sentence of § 142 superfluous. Cf. Wheatley v. Massachusetts
Insurers Insolvency Fund, 456 Mass. 594, 601 (2010) (statute
should not be interpreted to leave any part inoperative or
superfluous).
2. Accrual. NEC alternatively argues that its claims were
timely because they accrued within the six-year limitations
period. As mentioned, NEC's counterclaims against OneBeacon
were brought in September, 2005, while most of its claims
against the other insurers were brought in 2007, and still
"(e) the basic policies underlying the particular
field of law,
"(f) certainty, predictability and uniformity of
result, and
"(g) ease in the determination and application of the
law to be applied."
18
others in 2009. We examine the history of dealings between NEC
and the insurers to determine when NEC's claims accrued and,
thus, whether the motion judges erred in determining that
certain claims were time-barred.
The statute of limitations for a claim for breach of an
insurance policy, as in a contract action generally, begins to
run on the date of the insurer's alleged breach. See Berkshire
Mut. Ins. Co. v. Burbank, 422 Mass. 659, 661 (1996). Under this
rule, NEC's claims accrued when the insurers failed or refused
to pay defense and indemnity costs under the policies. See id.
at 663 n.5. An action for breach of an insurance policy, like
an action in tort, however, may be tolled until the insured
discovers the facts giving rise to its claim. Szymanski v.
Boston Mut. Life Ins. Co., 56 Mass. App. Ct. 367, 370 (2002).
"When . . . the parties press different events as triggering
accrual, the factual inquiry focuses on which was the first
event reasonably likely to put the plaintiff on notice that the
defendant's conduct had caused him injury." Id. at 371. NEC
and the insurers disagree as to the nature and extent of the
injury that should have alerted NEC to its claims.
a. Duty to defend. NEC appeals from the summary judgment
decisions of the second judge for OneBeacon and Century as to
Tidewater, and from the decision of the third judge for both
19
insurers as to Hamlet and PWSB.23 The primary policies, issued
by OneBeacon and Century, provided that the insurers had the
"right and duty to defend" suits against the insured. NEC's
initial counterclaim, filed in 2005, asserted that OneBeacon had
a duty to defend. It was not until NEC's second amended
counterclaim, filed in 2009, that NEC asserted that Century also
had a similar duty to defend. NEC's claims for breach of the
duty to defend accrued when its demand to the insurers for costs
associated with defending the claims was refused, and NEC began
to incur such costs. See Siebe, Inc. v. Louis M. Gerson Co., 74
Mass. App. Ct. 544, 558 (2009) (limitations period for breach of
duty to defend begins to run when insured is sued, insurer
refuses to defend, and insured begins to incur defense costs).
See also Berkshire Mut. Ins. Co. v. Burbank, 422 Mass. at 662
(action against insurer accrued when it refused to arbitrate
plaintiff's claim); Lumbermens Mut. Cas. Co. v. Y.C.N. Transp.
Co., 46 Mass. App. Ct. 209, 214 (1999) (assuming insurer's
disclaimer violated duty to defend, insured required to bring
action to recover defense costs within six years from the
disclaimer); John Beaudette, Inc. v. Sentry Ins. A Mut. Co., 94
F. Supp. 2d 77, 102-103 (D. Mass. 1999). The judges properly
23
NEC also brought a claim for defense costs against one
excess insurer (AISLIC), which is not at issue on appeal.
20
ruled that NEC's claims for defense costs were time-barred based
on the dates it received the insurers' disclaimers.24
NEC urges that its duty to defend claims should be governed
by the majority rule, which requires resolution of the
underlying litigation against the insured before a claim for
breach of the duty to defend accrues. See, e.g., Dutton-Lainson
Co. v. Continental Ins. Co., 271 Neb. 810, 825-828 (2006), and
cases cited; 17 Couch, Insurance § 236:102 (3d ed. 2000) (citing
rule that underlying judgment triggers accrual of action for
refusal to defend but acknowledging authority to the contrary).
A primary reason cited for waiting until the underlying
litigation concludes is to ascertain the extent of the insured's
defense costs. See, e.g., Brannon v. Continental Cas. Co., 137
P.3d 280, 285 n.20 (Alaska 2006). Massachusetts, however, does
not follow the majority rule. Here, certainty as to the amount
of a plaintiff's claim is not a prerequisite to accrual of a
breach of contract claim. See, e.g., International Mobiles
Corp. v. Corroon & Black/Fairfield & Ellis, Inc., 29 Mass. App.
Ct. 215, 221 (1990) (breach of contract claim accrued when
24
As we have noted, OneBeacon disclaimed coverage as to
Tidewater and PWSB on March 18, 1996, and again on October 14,
1998; Century reserved its rights on November 15, 1995. As to
Hamlet, OneBeacon disclaimed coverage on October 14, 1998, and
Century reserved its rights on April 7, 1997. NEC's claim for
coverage from OneBeacon was filed in September, 2005; its
counterclaim against Century for a duty to defend was not filed
until July, 2009, in the second amended counterclaim.
21
insurance agent failed to procure insurance policy, not later
date, after trial of underlying negligence claim against
insured). See also DiGregorio v. Commonwealth, 10 Mass. App.
Ct. 861, 862 (1980). Therefore, accrual of an action for
defense costs is not postponed until their full extent can be
determined.
NEC additionally argues that accrual should be tolled
because the duty to defend is a continuing obligation, which the
insurer might cure by the litigation's conclusion. See Vigilant
Ins. Co. v. Luppino, 352 Md. 481, 492 (1999). In Massachusetts,
however, the possibility that the insurer might eventually cure
the breach does not affect accrual once the breach occurs. See,
e.g., International Mobiles Corp. v. Corroon & Black/Fairfield &
Ellis, Inc., 29 Mass. App. Ct. at 221, citing DiGregorio v.
Commonwealth, 10 Mass. App. Ct. at 862 (rejecting plaintiff's
argument that accrual should be tolled until condition defendant
required for payment of damages was fulfilled so that plaintiff
could ascertain whether defendant would make any payment).
Contrast Lumbermens Mut. Cas. Co. v. Y.C.N. Transp. Co., 46
Mass. App. Ct. at 214-215 (by making partial payment after first
disclaiming coverage and after statute of limitations had run,
insurer waived the limitations defense). Accordingly, we
decline to follow those jurisdictions that require resolution of
22
the underlying litigation before the insured's claim for breach
of the duty to defend accrues.25
NEC further complains that the judges wrongly treated
Century's reservation of rights as a disclaimer of Century's
duty to defend regarding claims against NEC for environmental
pollution at Tidewater, Hamlet, and PWSB. Century reserved its
rights for Tidewater and PWSB on November 15, 1995, and for
Hamlet on April 7, 1997, but then failed to make a decision for
a number of years, even as NEC incurred costs.26
We agree with the judges that Century's failure to render a
decision on NEC's request for a defense, despite the significant
passage of time, constituted a breach that triggered the statute
of limitations at some point well before 2003. As one of the
25
We also reject NEC's reliance on the "no action"
provision in some of the policies as a basis to postpone accrual
until judgment enters in the underlying action. The typical
provision here provided, in relevant part, that "[n]o action
shall lie against the [insurer] . . . until the amount of the
Insured's obligation to pay shall have been finally determined
either by judgment . . . or by written agreement." See, e.g.,
Ratner v. Canadian Universal Ins. Co., 359 Mass. 375 (1971).
There, although the insurer argued the claim against it was
premature under the policy's "no action" provision, the court
held that an insurer that "without right has refused to defend
an action against its insured no longer can insist upon the case
being carried to judgment against the insured." Id. at 379,
quoting from Berke Moore Co. v. Lumbermens Mut. Cas. Co., 345
Mass. 66, 70 (1962). See John Beaudette, Inc. v. Sentry Ins. A
Mut. Co., 94 F. Supp. 2d at 101-103.
26
Indeed, for all that appears, Century never made a formal
disclaimer of its duty to defend.
23
judges explained, the time needed for the insurer to make a
determination regarding its duty to defend "required no more
than a comparison of the LOR against the terms of the 1985
policy." See Siebe, Inc. v. Louis M. Gerson Co., 74 Mass. App.
Ct. at 548, 558 (claim accrued when insured sent insurer notices
of underlying lawsuits, and insurer failed to reply to notices).
See also DiGregorio v. Commonwealth, 10 Mass. App. Ct. at 862;
Felton v. Labor Relations Commn., 33 Mass. App. Ct. 926, 927-928
(1992) (plaintiff's claim barred where he waited ten months,
without inquiry, for union's response to his request to file
grievance); Epstein v. C.R. Bard, Inc., 460 F.3d 183, 187-188
(1st Cir. 2006) (statute of limitations was not tolled pending
defendant's reply to plaintiff's letter inquiring whether
defendant was improperly using his technology).
b. Duty to indemnify. Accrual of NEC's claims for breach
of the insurers' duty to indemnify involves somewhat different
considerations. The policies required the insurers to indemnify
NEC for amounts that NEC became legally obligated to pay as
damages, because of property damage, in actions brought against
it by third parties.27 Thus, NEC's claims against the insurers
accrued when the insurers breached that duty, by failing or
27
The language of the policies differs slightly, some
referring to the insured's legal obligation or loss the insured
is legally obligated to pay, others to the insured's liability
arising from a claim against it or imposed by law.
24
refusing to pay environmental response costs that NEC became
legally obligated to pay. See Berkshire Mut. Ins. Co. v.
Burbank, 422 Mass. at 663 n.5 (collecting cases).
NEC urges that its cause of action did not accrue until its
legal obligation to pay environmental damages was established
through adjudicatory proceedings, whether by judgment,
settlement, or other binding determination. See, e.g., John
Beaudette, Inc. v. Sentry Ins. A Mut. Co., 94 F. Supp. 2d at 103
(reasoning, inter alia, that underlying lawsuit against insured
might determine that insured was not liable). See also 17
Couch, Insurance § 236:17 (3d ed. 2000) (claim under commercial
policy covering legal liability of insured accrues upon
rendering of judgment against insured). While we understand the
argument, we think a legal obligation imposed by a governmental
agency, pursuant to an environmental statute, is different. The
insured's liability for remediation in such instances may be
determined long before final judgment. Indeed, given the public
interest in a prompt response to environmental hazards, the
insured's legal obligation for the expenses may arise without
any litigation at all.
In Hazen Paper Co. v. United States Fid. & Guar. Co., 407
Mass. 689, 693-697 (1990), for example, a letter from the EPA
was deemed the equivalent of a lawsuit, for purposes of
establishing a duty to defend. In that case, the insured was
25
required to respond to the EPA's assertion that releases of
hazardous substances were occurring at a facility where the
insured had sent solvents for recycling. The EPA letter, while
seeking the insured's voluntary participation, essentially
required the insured's commitment to all measures needed to
remediate the site, and advised of penalties for failure to
cooperate. In the court's view, "It would be naive to
characterize the EPA letter as a request for voluntary action."
Id. at 697. Given the statutory powers available to the EPA,
"[t]he prospects of avoiding financial responsibility were
minimal because liability is not based on fault," and available
defenses were few. Id. at 696-697. The obligation to pay
response costs was imposed pursuant to the statutory authority
granted to the agency, and required no lawsuit -- in fact, none
had been filed.
"[T]he EPA processes for the enforcement of obligations to
aid in the cleaning up of environmental pollution have
moved away from the use of lawsuits toward the use of
agency demands for participation in remedial action. Those
requests are dangerous for the alleged polluter to ignore
because they often result in dispositive, extrajudicial
solutions."
Id. at 695-696.
Applying those same principles to the duty to indemnify,
in Employers' Liab. Assur. Corp. v. Hoechst Celanese Corp., 43
Mass. App. Ct. 465, 482-483 (1997), we reasoned that the excess
insurers' duty to indemnify the insured for liability "imposed
26
upon the Insured by law," as the policies provided, was
triggered when an environmental agency sought response actions
from the insured; formal litigation was not required.28 As this
court explained, "It is hard to see what public interest would
be promoted by having an insured deliberately await, or even
actively encourage, formal litigation by an environmental agency
in order to make sure that the insured's right of
indemnification would not be compromised." Id. at 483. Compare
Wilkinson v. Citation Ins. Co., 447 Mass. 663, 671 (2006) (in
usual case of insurer indemnification for property damage,
"[t]he element of time is less critical").
Taking all of these considerations into account, we
conclude that for purposes of accrual, NEC's legal obligation
was established when the respective governmental agencies
imposed essentially mandatory requirements that NEC take action.
Neither litigation nor final resolution was necessary, in this
context, to impose liability for purposes of accrual of NEC's
indemnification claims against the insurers.
NEC additionally argues that its costs incurred prior to
the mid-2000s were purely investigative, rather than remedial,
28
As to the contrary view, that the insurers' duty would
only be triggered by "a lawsuit or similar compulsory
proceeding," Justice Kaplan observed, "In a superficial view,
this seems incorrect, for we regularly speak of the existence of
legal liabilities although they have not been and are not being
established by actual litigation." 43 Mass. App. Ct. at 482.
27
and so implicated only the accrual of its claims for breach of
the insurers' duty to defend, not their duty to indemnify. See,
e.g., American Bumper & Mfg. Co. v. Hartford Fire Ins. Co., 452
Mich. 440, 460-461 (1996) (distinguishing investigation costs
that go toward remediation from those aimed at limiting
insured's liability, which are treated as defense costs).
However, as the second judge observed, NEC claimed the right, in
its answers to interrogatories, to recover all costs incurred at
the sites, for both investigation and remediation, as
indemnification costs. Moreover, NEC's response actions took a
remedial turn long before the accrual dates for its
indemnification claims against the insurers. For Tidewater,
that happened when NEC agreed to the LOR on September 22, 1995,
and incurred associated costs as of April, 1996, for submitting
and implementing a remedial investigative work plan to address
the environmental releases. For Lawn Street, NEC's legal
liability for damages was established when it entered into the
amended administrative consent order with DEP on September 13,
1996, agreeing to conduct all necessary response actions. With
regard to Hamlet, NEC responded to the LOR on February 25, 1997,
by agreeing to pay for the remediation. And at PWSB, NEC
responded to the LOR in September, 1995, by agreeing to comply
with RIDEM's request to remit the remediation costs, and
28
depositing the funds in escrow pending the outcome of related
litigation.29 See note 14, supra.
NEC also complains that the third judge erred in ruling
that the reservation of rights letters issued by Century and
London, for PWSB and Hamlet, amounted to disclaimers by the time
NEC's claims for indemnification accrued in October, 2001.30
Century reserved its rights in 1995 and 1997 for PWSB and
Hamlet, respectively, and London reserved its rights in 1996 and
1997, for PWSB and Hamlet, respectively. The judge, relying on
the duty to defend analysis in Siebe, Inc. v. Louis M. Gerson
Co., 74 Mass. App. Ct. at 558, reasoned that the insurers' delay
in failing to provide an affirmative response to NEC's demand
for coverage, combined with the fact that NEC began to incur
response costs at those sites, constituted a breach of contract
sufficient to trigger the statute of limitations for NEC's
indemnification claims.
29
NEC argues that its liability for cleanup at PWSB was not
established until 2003, when it agreed to fund the remediation,
and that placing the funds in escrow pending the outcome of its
litigation as to whether the material removed from the site by
RIDEM was a "hazardous substance" under Federal or State law did
not establish liability. But we view the requirement that NEC
escrow the funds, in order to comply with RIDEM's demand, as a
legal obligation triggering accrual of its claim, regardless
whether the funds might ultimately be returned to NEC. See,
e.g., DiGregorio v. Commonwealth, 10 Mass. App. Ct. at 862.
30
The judge incorrectly characterized London's response to
NEC's notices regarding those sites as a denial of coverage, and
London appears to concede the point.
29
Our review of the summary judgment record leads us to
conclude otherwise. We think a question of fact exists as to
whether the insurers' failure to make coverage determinations
with respect to Hamlet and PWSB constituted disclaimers of their
duty to indemnify prior to October, 2001. To begin, unlike the
duty to defend, an insurer's determination of its duty to
indemnify depends on actual facts, rather than allegations, and
reasonably might require more time to investigate. See, e.g.,
Employers Mut. Cas. Co. v. PIC Contractors, Inc., 24 F. Supp. 2d
212, 217 (D.R.I. 1998). Moreover, correspondence and deposition
testimony in the record indicate that Century and London
continued to communicate with NEC concerning PWSB and Hamlet
after the initial reservation of rights letters were issued. A
July 14, 1999, letter from London to NEC requested additional
information to evaluate NEC's claims for Hamlet and PWSB, and a
June 8, 2001, letter from London requested an itemization of
costs already incurred as well as a "site-by-site estimate" for
expected future costs for all NEC sites. Deposition testimony
from a Century representative suggested that Century, as well,
may have continued to communicate with NEC regarding the sites
after issuing its initial reservation of rights.31 Construing
31
In the case of Century's response regarding PWSB, a
Century representative testified that while there was no written
correspondence in the file between 1995 and 2002, there may have
been telephone calls and other verbal communication, "which I
30
the evidence and reasonable inferences in favor of NEC, the
nonmoving party, the insurers' conduct suffices to raise a
question of fact as to whether Century and London's responses to
NEC's indemnification claims for PWSB and Hamlet constituted
disclaimers prior to 2001.
We note that the same judge presided at the trial for the
Tidewater site, which involved NEC's indemnification claims
against Century and London and took place almost a year before
the judge ruled in their favor on NEC's indemnification claims
for PWSB and Hamlet. At the Tidewater trial, the question
whether Century and London's reservation of rights letters and
subsequent conduct constituted disclaimers prior to 2001 was put
to the jury on similar facts. We discern no basis for the
divergent rulings and conclude that the summary judgment record
raises an issue of material fact as to whether Century and
London disclaimed their duty to indemnify NEC for PWSB and
Hamlet; the matter should not have been decided as a matter of
law on summary judgment.
B. Dismissal with prejudice. On February 4, 2011, after
prosecuting its claims against the insurers for over five years,
NEC moved to voluntarily dismiss its claims, pursuant to
would have expected in the ordinary course of business," and
that Century had continuously indicated to NEC that it was still
gathering information. As for the Hamlet Avenue site, the same
Century representative testified in 2010 that "we are continuing
to investigate the site at this point."
31
Mass.R.Civ.P. 41(a)(2), 365 Mass. 803 (1974), for High Street,
Pond Street, and Exchange Street. Although NEC had anticipated
RIDEM involvement at those sites, no such action was
forthcoming, and thus there existed no claim under the policies
and no justiciable controversy. In an order issued in February,
2012, the third judge, who heard the motion, conditioned the
allowance of NEC's request for dismissal without prejudice upon
NEC's payment of the insurers' reasonable costs and attorney's
fees in responding to those claims. At a hearing held one month
later, the parties reported that they had not reached agreement
on how to proceed; as a result, the insurers had not yet
submitted their fee request. Thereupon, in the interest of
"mov[ing] this case on," the judge dismissed the claims with
prejudice and omitted the award of attorney's fees.
On appeal, NEC argues that the claims should have been
dismissed without prejudice, correctly observing that because
the claims presented no justiciable controversy, the court
lacked subject matter jurisdiction to enter an order of
dismissal with prejudice. See Department of Community Affairs
v. Massachusetts State College Bldg. Authy., 378 Mass. 418, 422
(1979) (court's subject matter jurisdiction limited to cases
involving an actual controversy); Linehan v. Linehan, 453 Mass.
1017, 1017-1018 (2009) (until claim became ripe, it did not meet
32
jurisdictional threshold of an actual controversy; dismissed
without prejudice).
In entering the order of dismissal without prejudice,
conditioned on NEC's paying the defendants' attorney's fees, the
judge relied on rule 41(a)(2), which provides that voluntary
dismissal be allowed "upon such terms and conditions as the
court deems proper." See Quest Sys., Inc. v. Zepp, 28 Mass.
App. Ct. 489, 494 (1990) (award of attorney's fees "not unusual
where dismissal is without prejudice"). However, Mass.R.Civ.P.
12(h)(3), 365 Mass. 754 (1974), requires that "[w]henever it
appears by suggestion of a party or otherwise that the court
lacks jurisdiction of the subject matter, the court shall
dismiss the action." The rule makes no mention of terms and
conditions that may attach to dismissal when subject matter
jurisdiction is lacking. In fact, this court has held that
dismissal for lack of subject matter jurisdiction, even if
labelled "with prejudice," will not bar a subsequent action by
the plaintiff on the same claim. Department of Rev. v. Ryan R.,
62 Mass. App. Ct. 380, 383 (2004), citing Restatement (Second)
of Judgments § 20 comment d (1982). See also Mass.R.Civ.P.
41(b)(3), as amended, 454 Mass. 1403 (2009).32
32
Rule 41(b)(3) provides, in relevant part, that "any
dismissal not provided for in this rule, other than a dismissal
for lack of jurisdiction, . . . operates as an adjudication upon
the merits."
33
We recognize that the Superior Court judge possessed
inherent power to manage his case load and enforce his lawful
orders, even in a manner not specifically authorized by the
rules. See Sommer v. Maharaj, 451 Mass. 615, 621 (2008). But
even assuming, without deciding, that such power may be
exercised in the course of complex litigation when subject
matter jurisdiction over a particular claim is lacking, NEC's
conduct here did not warrant dismissal with prejudice. The
court's inherent power is to be exercised with restraint and
discretion, with the extreme sanction of dismissal with
prejudice reserved for extreme misconduct. Id. at 621-622.
Here, the hearing transcript suggests that NEC was not
recalcitrant in failing to pay the insurers' fees but, rather,
was awaiting information from the insurers regarding the amount
of their fees. Indeed, at the March, 2012, hearing, the judge
acknowledged, "[T]hat's fine. I appreciate you tried." We
agree with NEC that the judge's decision to dismiss its claims
with prejudice in order to "move this case on" was not
warranted.
A question remains whether the judge had authority to order
that NEC pay the insurers' attorney's fees as a condition of
dismissal without prejudice, when the court lacked subject
34
matter jurisdiction over the claims.33 We think not. In Quest
Sys., Inc. v. Zepp, supra, relied upon by the insurers, this
court ordered dismissal without prejudice, with imposition of
attorney's fees at the judge's discretion. 28 Mass. App. Ct. at
498. However, that case did not implicate the trial court's
subject matter jurisdiction. Again, Mass.R.Civ.P. 12(h) does
not authorize the imposition of terms or conditions in the order
of dismissal in this instance, and the record does not justify
the fee award as a sanction for misconduct. NEC's claims
involving High Street, Pond Street, and Exchange Street are
therefore to be dismissed without prejudice.
III. Conclusion. It was error to grant summary judgment
(a) in favor of Century and London on statute of limitations
grounds with respect to their duty of indemnification for Hamlet
Avenue and PWSB; and (b) in favor of OneBeacon, Century, and
American Home with respect to the application of the pollution
exclusion provisions in their policies covering the J.M. Mills
site. Accordingly, we reverse so much of the final judgment and
declaratory decree as (a) declares that Century and London have
no duty to indemnify NEC with respect to claims or liabilities
at Hamlet Avenue and PWSB and dismisses those claims; and (b)
declares that OneBeacon and Century have no duty to defend or
33
NEC does not raise the point, but we address it, in
accordance with Mass.R.Civ.P. 12(h)(3).
35
indemnify, and American Home has no duty to indemnify, NEC with
respect to claims or liabilities at J.M. Mills and dismisses
those claims. We vacate so much of the final judgment and
declaratory decree as dismisses with prejudice NEC's claims as
to High Street, Pond Street, and Exchange Street, and the
judgment shall be modified to dismiss those claims without
prejudice. In all other respects, the final judgment and
declaratory decree is affirmed. The orders denying Century's
motion for judgment notwithstanding the verdict (JNOV) or new
trial, London's motion for JNOV, and London's motion for new
trial and to alter or amend the judgment are affirmed.
So ordered.