First State Insurance Company v. XTRA Corporation

IN THE UNITED STATES DISTRICT COURT

FOR THE SOUTHERN DISTRICT OF ILLINOIS

FIRST STATE INSURANCE COMPANY,

Plaintiff & Counterclaim-Defendant,

v.

Case No. 3:22-CV-216-NJR

XTRA Intermodal, Inc.; X-L-Co., Inc.;

XTRA LLC; & XTRA Corporation,

Defendants, Crossclaim Defendants,

Counterclaim Plaintiffs, & Crossclaim

Plaintiffs,

Associated Indemnity Company;

Fireman’s Fund Insurance Company, &

American Insurance Company,

Defendants, Crossclaim Defendants,

Counterclaim Plaintiffs, & Crossclaim

Plaintiffs.

MEMORANDUM AND ORDER

ROSENSTENGEL, Chief Judge:

Pending before the Court are two choice of law motions: (1) First State Insurance

Company, Associated Indemnity Company, Fireman’s Fund Insurance Company, and

American Insurance Company’s (collectively “Insurers”) Joint Motion on Choice of Law

(Doc. 125); and (2) XTRA Intermodal, Inc., XTRA LLC, X-L-Co., Inc., and XTRA Corporation’s

(collectively “XTRA Entities”) Motion on Choice of Law (Doc. 127). The Insurers contend that

the substantive law of Massachusetts governs this coverage dispute, whereas the XTRA

Entities argue that Illinois law applies.

The parties have submitted a stipulation establishing certain facts and the authenticity

of certain documents for use in connection with their respective motions (the “Stipulation”).

(Doc. 124). The Stipulation “constitutes a final and binding determination of the facts set forth

in the Stipulation” to the extent that a Party so stipulated. Id. at 2. The Court has carefully

reviewed the briefs, the Stipulation, and the supporting exhibits. For the following reasons,

the Court concludes that Illinois law governs this dispute.

BACKGROUND

1. The Parties

XTRA Corporation (“XTRA Corp.”) is incorporated in Delaware and its current

principal place of business is in St. Louis, Missouri. (Doc. 125-3 at 3). From 1977 until 1987,

XTRA Corp.’s “management offices,” which served “administrative” and non-customer-

facing functions, were located in Boston, Massachusetts. (Doc. 125-3 at 3; Doc. 125-2 at 18).

During that time, however, XTRA Corp.’s “principal executive offices” were located in

Delaware. (Doc. 125-3 at 3; Doc. 125-2 at 17). XTRA, Inc. is a Massachusetts corporation that

merged into XTRA Corp. in December 1976. (Doc. 124 at ¶ 27). After this merger, XTRA, Inc.

was dissolved. (Doc. 125-2 at 15). X-L-Co., Inc. (“X-L-Co.”) is incorporated in Delaware and,

until 1999, it maintained its principal place of business in Massachusetts. (Doc. 125-3 at 4).

Today, X-L-Co.’s corporate records, officers, and directors are located in the St. Louis,

Missouri area. Id. XTRA Intermodal, Inc. (“XTRA Intermodal”) is incorporated in Delaware

and its principal place of business is in Missouri. Id. XTRA LLC is a Maine limited liability

company whose sole member is XTRA Companies, Inc.,1 a Delaware corporation with its

principal place of business in Missouri. (Doc. 125-7 at 3).

American Insurance Company (“American Insurance”) is incorporated in Ohio.

1 XTRA Companies, Inc. is not a party to this case.

(Doc. 124 at ¶ 80). Associated Indemnity Company (“Associated Indemnity”) is incorporated

in California. Id. at ¶ 81. The principal place of business for both American Insurance and

Associated Indemnity is in California. Fireman’s Fund Insurance Company (“FFIC”) is

incorporated in California, and between 1976 and January 2022, its principal place of business

was also in California. Id. at ¶¶ 79, 84. FFIC acquired Associated Indemnity and American

Insurance in 1963 (FFIC, Associated Indemnity, and American Insurance are thus referred to

as the “Primary Insurers” and the insurance policies they issued to the XTRA Entities are

referred to as the “FFIC Policies”). Id. at ¶ 82. Between 1978 and 1985, Associated Indemnity

issued five primary insurance policies to one or more of the XTRA Entities. (Doc. 124 at ¶ 52;

Doc. 125 at 5). During that same period, American Insurance issued 13 commercial insurance

policies to one or more of the XTRA Entities. (Doc. 124 at ¶ 58; Doc. 126-1 at 22-56).

First State Insurance Company (“First State”) is incorporated and maintains its

principal place of business in Connecticut. (Doc. 7-1 at ¶ 5). First State issued eight excess

insurance policies to XTRA Corp. between 1977 and 1983. (Doc. 124 at ¶ 102; Doc. 125 at 4).

During that time, First State had no employees, and its affiliate, Cameron and Colby

Company, Inc. (“Cameron and Colby”), served as its managing general agent, underwriting

insurance policies on First State’s behalf. (Doc. 124 ¶¶ 97, 99). Cameron and Colby was

headquartered in Boston, Massachusetts, although it had operations throughout the country,

including in Illinois. Id. ¶ 98. The eight First State insurance policies at issue here were issued

to XTRA Corp. or its predecessor by merger, XTRA, Inc. Id. ¶ 102. The goal of these policies

was to procure insurance coverage “for XTRA Corporation and all its subsidiaries

nationwide.” (Doc. 125-2 at 19).

2. Factual Background

This litigation concerns significant environmental pollution at the Old American Zinc

Superfund Site in Fairmont City and Washington Park, in St. Clair and Madison Counties,

Illinois (“OAZ Superfund Site”). (Doc. 124 at ¶ 1). The OAZ Superfund Site embraces a 132-

acre facility area where zinc smelting operations were historically conducted (“OAZ Facility

Area”), as well as surrounding areas. Id. at ¶ 2. In September 1976, X-L-Co. leased parts of

the OAZ Facility Area from American Zinc Company (“American Zinc”) for use as a trucking

terminal. Id. at ¶ 4; United States v. XTRA Intermodal, Inc., 3:21-cv-00339-NJR (Doc. 1 at ¶ 33)

(hereinafter “EPA Complaint”). In 1979, X-L-Co. purchased the full OAZ Facility Area from

American Zinc to expand its trucking operations. (Doc. 124 at ¶ 6; EPA Complaint at ¶¶ 35,

37). In 1995, X-L-Co. conveyed the OAZ Facility Area to XTRA Intermodal, Inc. (Doc. 124 at

¶ 9).

Over the years, the OAZ Facility Area’s operations led to the release of hazardous

substances, including lead, cadmium, zinc, arsenic, and manganese into the surface and

groundwater of the OAZ Superfund Site. (EPA Complaint at ¶ 4). These operations also

generated a byproduct known as “slag,” which was poured along the boundaries of the OAZ

Facility Area in a molten state and left to cool over time. (Doc. 124 at ¶¶ 74, 75). The resulting

slag piles “encompassed more than 15 acres over the western and northern boundaries of the

OAZ Facility Area.” Id. at ¶ 75. Today, residential, commercial, and public properties are

located within the OAZ Superfund Site, along with “drainage ways that receive drainage

from the OAZ Facility Area[,] and shallow groundwater within and immediately adjacent to

the OAZ Facility Area.” Id. ¶ 2.

PROCEDURAL HISTORY

In 2013, Blue Tee Corp. (“Blue Tee”), the successor to American Zinc, sued the XTRA

Entities in this Court seeking contribution for costs associated with the remediation of the

OAZ Superfund Site (“the Blue Tee Lawsuit”). (See Blue Tee Corp. v. XTRA Intermodal, Inc.,

3:13-cv-830-DRH; Doc. 125-5). The Blue Tee Lawsuit was dismissed at the request of all

parties in January 2020 after Blue Tee reached a settlement with state and federal regulators.

(Doc. 125-6; Doc. 125-7 at 4).

On March 30, 2021, the United States, on behalf of the Environmental Protection

Agency (“EPA”), and the State of Illinois, on behalf of the Illinois Department of Natural

Resources (collectively the “Government”), filed a complaint against X-L-Co. and XTRA

Intermodal in this Court pursuant to Sections 106 and 107 of the Comprehensive

Environmental Response, Compensation, and Liability Act (“CERCLA”). (Doc. 124 at ¶ 18;

see also (EPA Complaint at ¶ 1)). The EPA Complaint alleged that the zinc smelting operations

in the OAZ Facility Area had caused serious damage to the environment at the OAZ

Superfund site, which required extensive and ongoing remediation. Id. at ¶¶ 1, 19, 20. The

Government sought injunctive relief and reimbursement of costs from XTRA Intermodal and

X-L-Co. for the response to the release or threatened release of hazardous substances at the

OAZ Superfund Site. Id. at ¶ 1. Responsive actions included the excavation of contaminated

soils in and around the OAZ Facility Area and capping of consolidated excavated soil under

a thick barrier layer. Id. at ¶14. The EPA estimated that the total cost of remediation was

between $90 million and $100 million, which included over $44 million in direct future

remediation costs. (Doc. 124 at ¶ 20). In June 2021, a consent decree was entered in the

Government’s lawsuit against X-L-Co. and XTRA Intermodal, pursuant to which, X-L-Co.

and XTRA Intermodal were held liable for response costs and environmental damage in the

amount of approximately $41 million. United States v. XTRA Intermodal, Inc., 3:21-cv-00339-

NJR (Doc. 13-1 at 7).

The Blue Tee Lawsuit and the Government’s lawsuit against X-L-Co. and XTRA

Intermodal gave rise to two separate lawsuits in Massachusetts. The first lawsuit was filed in

the United States District Court for the District of Massachusetts in 2014 by Federal Insurance

Company (“Federal”), one of the XTRA Entities’ primary insurance providers, against the

XTRA Entities and several of their other primary insurance providers (the “Primary

Coverage Litigation”).2 (Doc. 125-8 at 4). The Primary Coverage Litigation concerned various

primary insurance providers’ respective obligations to defend and indemnify the XTRA

Entities in the Blue Tee Lawsuit. (Doc. 47 at 2-3). On July 15, 2015, the District of

Massachusetts transferred the Primary Coverage Litigation to this district pursuant to

28 U.S.C. § 1404(a). (Doc. 125-8 at 19). After the venue transfer, the Primary Coverage

Litigation was stayed pending the outcome of the Blue Tee Lawsuit. (Doc. 125-7 at 5).

The second lawsuit, originally filed by First State against the XTRA Entities in the

Suffolk County Superior Court in Massachusetts in October 2021, forms the basis of this

action (the “Excess Coverage Litigation”). Id. The Excess Coverage Litigation was removed

to federal court in Massachusetts and similarly transferred to this Court on February 3, 2022.

(Doc. 125-7 at 18). With both the Primary Coverage Litigation and the Excess Coverage

Litigation now in this Court, the XTRA Entities filed a motion to join the Primary Insurers as

Defendants in this action under Federal Rules of Civil Procedure 19(a) and 21. (Doc. 47). The

2 The Primary Coverage Litigation was docketed in this Court as Federal Insurance Company v. XTRA Intermodal,

Inc. et al., 3:15-cv-00766-NJR.

Court granted the XTRA Entities’ motion for joinder on March 23, 2022. (Doc. 48). With all

parties properly joined, they proceeded to litigate the choice of law issue addressed in this

Order.3

DISCUSSION

The critical issue at this stage of the litigation is whether the substantive law of

Massachusetts or Illinois governs the interpretation of the insurance policies at issue. Because

this case originated in the United States District Court for the District of Massachusetts, the

3 The XTRA Entities removed this case to federal court on the basis of diversity of citizenship under 28 U.S.C.

§ 1332(a). (Doc. 7-8). Federal courts have original jurisdiction over all actions between “citizens of different

States” where the amount in controversy exceeds $75,000, exclusive of interest and costs. 28 U.S.C. § 1332(a). To

proceed on this jurisdictional basis, the Court must satisfy itself that complete diversity of citizenship exists and

that the amount in controversy requirement is satisfied. City of E. St. Louis, Illinois v. Netflix, Inc., 83 F.4th 1066,

1070 (7th Cir. 2023); Webb v. FINRA, 889 F.3d 853, 856 (7th Cir. 2018). “Complete diversity exists only if none of

the defendants has the same citizenship as any plaintiff.” City of E. St. Louis, 83 F.4th at 1070. Complete diversity

exists here because none of the parties is a citizen of the same state as any party opponent. See Page v. Democratic

Nat’l Comm., 2 F.4th 630, 636 (7th Cir. 2021). The parties are corporate entities whose citizenship for diversity

purposes is determined by their state of incorporation and their principal place of business. 28 U.S.C. § 1332(c)(1).

At the time of removal, First State was incorporated and maintained its principal place of business in Connecticut

(Doc. 7 at 4); Associated Indemnity and FFIC were incorporated and maintained their respective principal places

of business in California (Doc. 124 at ¶¶ 79, 81; Federal Insurance Company v. XTRA Intermodal, Inc. et al., 3:15-cv-

00766-NJR (Doc. 6 at ¶¶ 10, 11)); American Insurance was incorporated in Ohio and maintained its principal

place of business in California (Doc. 124 at ¶ 80; Federal Insurance Company v. XTRA Intermodal, Inc. et al., 3:15-cv-

00766-NJR, (Doc. 6 at ¶ 8)). Thus, at the time of removal, the Insurers were citizens of Connecticut, California,

and Ohio. XTRA Corp., XTRA Intermodal, and X-L-Co. were incorporated in Delaware and maintained their

respective principal places of business in Missouri, thus making them citizens of those states. (Doc. 47 at 7). As a

limited liability company, XTRA LLC’s citizenship is determined by the citizenship of its members. Page, 2 F.4th

at 635. XTRA LLC’s sole member is XTRA Companies, Inc., a Delaware corporation with its principal place of

business in Missouri. (Doc. 125-7 at 3). Thus, XTRA LLC was a citizen of Delaware and Missouri. See City of E.

St. Louis, 83 F.4th at 1070 (a limited liability company’s citizenship must be “traced through as many levels as

necessary until reaching a natural person or a corporation.”). The Court notes that the Stipulation identifies First

State’s state of incorporation as Delaware. (Doc. 124 at ¶ 96). This would have presented a problem for complete

diversity because the XTRA Entities are also incorporated in Delaware. Upon closer inspection, however, the

Court concludes this part of the stipulation is an error, as the complaint and notice of removal both allege that

First State is a Connecticut corporation with its principal place of business in Connecticut (Doc. 7 at ¶ 15; Doc. 7-

1 at ¶ 5). Moreover, First State is identified as a “domestic” corporation whose “place of formation” is

Connecticut in the State of Connecticut’s official business entity database. See:

https://service.ct.gov/business/s/onlinebusinesssearch?businessNameEn=cKo1q417Bz9Wo06uUEEOYFu3W

boPduR3625uRZ%2BScmz5k1P1PBCS9aO%2Bz0vcn8Pv (last visited Mar. 29, 2024).

The amount in controversy is easily met in this case as the complaint properly alleges that X-L-Co. and XTRA

Intermodal confessed to an entry of judgment over $41 million. (Doc. 7-1 at ¶ 39). See Sykes v. Cook Inc., 72 F.4th

195, 205 (7th Cir. 2023) (amount in controversy standard is “not onerous,” and courts will find that they have

jurisdiction “unless an award for the jurisdictional minimum would be legally impossible.”).

choice of law rules of Massachusetts will resolve this question.4

1. Whether a Conflict of Law Exists

The first step in the analysis is to determine whether a conflict of law even exists

between the laws of Illinois and Massachusetts. Reicher v. Berkshire Life Ins. Co. of Am., 360

F.3d 1, 4 (1st Cir. 2004) (applying Massachusetts choice of law rules).

Most of the insurance policies at issue here contain a coverage exclusion for

environmental pollution, unless the discharge causing the pollution was “sudden and

accidental.” The language of the exclusion reads as follows:

It is agreed that the 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.

(Doc. 125-11 at 10) (emphasis added). In short, the policies exclude coverage for liabilities

arising out of toxic releases, but coverage is retriggered if the release was “sudden and

accidental.” These types of exclusion provisions are a common feature of comprehensive

general liability policies, as they protect insurers from claims for “pollution-related damage

which should reasonably have been foreseen.” Millipore Corp. v. Travelers Indem. Co., 115 F.3d

21, 24 (1st Cir. 1997). A critical issue in this case is whether the “sudden and accidental”

4 Ordinarily, federal courts sitting in diversity apply the choice of law rules of their forum state. Agfa-Gevaert,

A.G. v. A.B. Dick Co., 879 F.2d 1518, 1525 (7th Cir. 1989). For this Court, that would mean that Illinois’ choice of

law rules apply. But because this case reaches this Court by way of a venue transfer under 28 U.S.C. § 1404, the

Court is obligated to apply the choice of law rules that would have applied in the transferor court, namely the

United States District Court for the District of Massachusetts. See Van Dusen v. Barrack, 376 U.S. 612, 639 (1964)

(change of venue does not affect choice of law analysis because “[a] change of venue under [§] 1404(a) generally

should be, with respect to state law, but a change of courtrooms.”); accord Ferens v. John Deere Co., 494 U.S. 516,

526 (1990).

exception to the coverage exclusion applies to retrigger coverage for the XTRA Entities.5

Thus, if Massachusetts and Illinois inconsistently interpret the scope of the “sudden and

accidental” exception, then a conflict of law exists.

In Lumbermens Mut. Cas. Co. v. Belleville Indus., Inc. (“Belleville”), the Supreme Judicial

Court of Massachusetts (at times referred to as the “SJC”) held that the word “sudden” in

conjunction with the word “accidental” incorporated a “temporal element.” 555 N.E.2d 568,

572 (Mass. 1990). This means that “[i]f the release was abrupt and also accidental, there is

coverage for an occurrence arising out of the discharge of pollutants.” Id. Conversely, if the

release of toxins was “gradual,” then the exclusion exception would not apply to retrigger

coverage.6 Id. “[T]he abruptness of the commencement of the release or discharge of the

pollutant,” the SJC explained, “is the crucial element” in determining whether insurance

coverage is available. Id.

Illinois has rejected this approach. In Outboard Marine Corp. v. Liberty Mut. Ins. Co., the

Illinois Supreme Court interpreted the term “sudden” to mean “unexpected or unintended.”

607 N.E.2d 1204, 1218 (Ill. 1992). The Outboard court cited and expressly repudiated Belleville’s

interpretation of the word “sudden” because, in its view, “unexpected or unintended releases

. . . are exactly the type of uncertainties or risks that an insured would want to insure against,”

regardless of the abruptness of the pollution. Id. at 1219. Thus, Illinois focuses on the

5 The Court takes no position at this time on the ultimate question of whether there is coverage under pollution

exclusion provision.

6 Belleville reached the SJC by way of a certified question of law from a federal district court. Id. at 570. This

procedural posture is important because the court was forced to offer its interpretation of the “sudden and

accidental” exclusion exception without the benefit of a fully developed factual record. See id. at 572, 573

(recognizing that “[t]he facts concerning the discharge of pollutants by [the insured] have not been certified to

us” and that the court consequently “d[id] not know enough about what the pollution was, and when and how

the release or discharge started, to say anything further.”).

foreseeability of the pollution-causing event to determine whether the exclusion exception

applies, not on its temporal characteristics.

It follows that Illinois interprets the exclusion exception more broadly than

Massachusetts, meaning that coverage may apply in situations under Illinois law where it

would not apply under Massachusetts law. C.f. Millipore, 115 F.3d at 30 (citing Belleville and

noting Massachusetts’ “expansive[]” interpretation of pollution exclusion provision). For this

reason, a conflict exists between Massachusetts and Illinois law in the interpretation of the

exclusion exception at issue here. This requires the Court to consult Massachusetts’ choice of

law rules to determine whether Massachusetts or Illinois substantive law applies.

2. Whether Massachusetts or Illinois Law Applies

The Supreme Judicial Court of Massachusetts has adopted a “functional choice-of-law

approach that responds to the interests of the parties, the States involved, and the interstate

system as a whole.” Bushkin Associates, Inc. v. Raytheon Co., 473 N.E.2d 662, 668 (Mass. 1985).

This “flexible interest-based” approach seeks to accommodate a wide range of scenarios and

interests that may be relevant in choosing the applicable law. Millipore, 115 F.3d at 30. The

goal is to produce “fair result[s]” based on the individualized considerations of each case,

rather than rigidly adhering to “artificial constructions” that fail to address the facts and

circumstances presented. Bushkin, 473 N.E.2d at 668.

In addition to providing flexibility, Massachusetts’ choice of law rules seek to promote

predictability and consistency. This is particularly true in cases like this one, where insurance

policies cover risks across multiple states. Under Massachusetts law, this means that “one

jurisdiction’s rules of decision must be applied to all of the sites.” Millipore, 115 F.3d at 31.

This principle promotes the “desirable” result of “uniform and practical coverage nationwide

for a multistate corporation.” W.R. Grace & Co. v. Hartford Acc. and Indem. Co., 555 N.E.2d 214,

221 (Mass. 1990). After all, “the expectations of the parties as well as commercial realities

require that the language in a single set of insurance policies should mean the same thing in

every state.” Millipore, 115 F.3d at 30-31.

Massachusetts has adopted the considerations of the Restatement (Second) Conflict of

Laws to inform a choice of law analysis. Bushkin, 473 N.E.2d at 670. Three Restatement

provisions are pertinent to this inquiry: Sections 193, 188, and 6. Section 193 offers choice of

law principles that specifically address disputes concerning insurance contracts; Section 188

provides guidance for choice of law analyses concerning contracts generally; and Section 6

offers general choice of law principles that apply, regardless of the nature of the dispute.

These provisions are considered sequentially: “[T]he first step is to ascertain whether the

provisions of § 193 will resolve the matter; if not, the next step is to employ the principles set

forth in § 188 to ascertain which State has a more significant relationship to the issues, using

in that analysis the factors set forth in § 6.” Clarendon Nat. Ins. Co. v. Arbella Mut. Ins. Co., 803

N.E.2d 750, 752-53 (Mass. App. Ct. 2004). The Court will follow this roadmap from Clarendon

in its choice of law analysis.

a. Restatement Section 193

Section 193 provides that “[t]he validity of a contract of fire, surety or casualty

insurance and the rights created thereby are determined by the local law of the state which

the parties understood was to be the principal location of the insured risk during the term of

the policy, unless with respect to the particular issue, some other state has a more significant

relationship under the principles stated in § 6.” “The location of the insured risk will be given

greater weight than any other single contact in determining the state of the applicable law

provided that the risk can be located, at least principally, in a single state.” Restatement

(Second) of Conflict of Laws § 193, cmt. b. Although this principle lends itself to a

straightforward application in the context of an insurance policy that covers a single risk—

such as a home or a car—it does not conclusively resolve the issue presented here because

the policies broadly cover risks across jurisdictions in the United States and Canada. As a

result, no single state can be identified as the principal location of the insured risk. At most,

one could say that Massachusetts would have a slightly more significant contact to the

insurance policies here because X-L-Co., one of the named insureds and the original lessee of

the OAZ Facility Area, maintained its principal place of business in Massachusetts during

the relevant policy periods. Comment b to Section 193 recognizes that the state of the

insured’s domicile may inform the search for the principal location of the insured risk

because “[i]n the normal case, . . . the policy will have been solicited and delivered and the

last act necessary to make the contract binding will have taken place in the state where the

insured is domiciled or incorporated, and where the insured risk is located.” Id. Accordingly,

this consideration favors Massachusetts as it served as the domicile for one of the insureds.

See Gen. Elec. Co. v. E.W. Lines, 2008 WL 2908053, at *2 (Mass. Super. 2008) (Gants, J.)7

(“[G]enerally, the insured risk will be located in the state where the policyholder is

domiciled.”).

But this rather tenuous connection to Massachusetts does not resolve the inquiry

under Section 193, much less the ultimate choice of law issue. Indeed, comment f to Section

193 addresses the “special problem” that arises in situations where multiple policies cover

7 The author of this opinion, Judge Ralph D. Gants, later joined the Supreme Judicial Court of Massachusetts and

served as its Chief Justice from 2014 to 2020.

risks in various states, the exact scenario presented here. The Restatement offered the

following observation:

A single policy may, for example, insure dwelling houses located in states X, Y

and Z. These states may require that any fire insurance policy on buildings

situated within their territory shall be in a special statutory form. If so, the

single policy will usually incorporate the special statutory forms of the several

states involved. Presumably, the courts would be inclined to treat such a case,

at least with respect to most issues, as if it involved three policies, each insuring

an individual risk. So, if the house located in state X were damaged by fire, it

is thought that the court would determine the rights and obligations of the

parties under the policy, at least with respect to most issues, in accordance with

the local law of X.

Id., cmt. f. The takeaway from this comment is that the location of an affected property plays

an important role in determining the applicable law for an insurance policy that implicates

various states. Here, that state would be Illinois, where the OAZ Superfund Site is located.

See A. Johnson & Co., Inc. v. Aetna Cas. and Sur. Co., 741 F. Supp. 298, 301 (D. Mass. 1990) (“The

basic policies underlying the developing law of environmental remedy strongly support

making the site of the alleged damage the governing jurisdiction for choice of law

purposes.”); but see W.R. Grace & Co. v. Maryland Ins. Co., 600 N.E.2d 176, 179 (Mass. App. Ct.

1992) (applying substantive law of New York to coverage dispute even though underlying

claim was located in Massachusetts). But there is more to this consideration than simply

identifying the OAZ Superfund Site as the location that generated a claim. The record reveals

that the five primary insurance policies issued by Associated Indemnity identified notably

more risk locations in Illinois than in Massachusetts. (Doc. 127-13 at 43-45; Doc. 127-14 at 25-

27; Doc. 127-15 at 29-32; Doc. 127-16 at 11-14; Doc. 127-17 at 9-12). It seems illogical to identify

Massachusetts as the “principal location of the insured risk” when the primary insurance

policies covered more locations in Illinois as well as other states. Accordingly, this

consideration under Section 193 would appear to favor the application of Illinois law.

The Court concludes that the considerations of Section 193, which seek to identify the

“principal location of the insured risk,” are in equipoise and do not resolve the issue of which

state’s law should apply. Thus, the Court will move on to consider the principles set forth in

Sections 188 and 6 of the Restatement to determine whether Illinois or Massachusetts law

should govern this coverage dispute.

b. Restatement Section 188

Section 188 provides that “[t]he rights and duties of the parties with respect to an issue

in contract are determined by the local law of the state which, with respect to that issue, has

the most significant relationship to the transaction and the parties under the principles stated

in § 6.” Restatement (Second) of Conflict of Laws § 188(1). Moreover, “the contacts to be taken

into account in applying the principles of § 6 to determine the law applicable to an issue

include: (a) the place of contracting, (b) the place of negotiation of the contract, (c) the place

of performance, (d) the location of the subject matter of the contract, and (e) the domicile,

residence, nationality, place of incorporation and place of business of the parties.” Id. at

§ 188(2). The SJC has cautioned that it “do[es] not view the process, intended under § 188, for

determining the State with the most significant relationship to the issue as simply adding up

various contacts.” Bushkin, 473 N.E.2d at 669.

Here, although Massachusetts has some contacts to the relevant policies under Section

188, the Court is not persuaded that it has “the most significant relationship” to the parties

and the transactions at issue. Restatement (Second) of Conflict of Laws § 188(1). The record

does not reveal the place of contracting. It is true that the First State Policies were issued to

either XTRA, Inc. or XTRA Corp. at a Massachusetts address. But XTRA, Inc. merged into

XTRA Corp. and was dissolved in December 1976, just three months after X-L-Co. leased

parts of the OAZ Facility Area from American Zinc, and three months before First State even

began providing insurance coverage to the XTRA Entities. (Doc. 124 at ¶ 97). The record also

shows that XTRA Corp. is incorporated and maintained its “principal executive offices” in

Delaware, not Massachusetts, which refutes the contention that Massachusetts was the place

of contracting. See Hertz Corp. v. Friend, 559 U.S. 77, 80 (2010) (a corporation’s principal place

of business is “the place where [its] high level officers direct, control, and coordinate [its]

activities.”). Thus, although the First State Policies list a Massachusetts address as the location

of the insured, this alone does not establish Massachusetts as the place of contracting because

that insured’s principal place of business was not in Massachusetts. Moreover, three of

Associated Indemnity’s policies list addresses in Missouri for XTRA Corp., which further

attenuates Massachusetts as the location of contracting. (Doc. 127-15 at 5; Doc. 127-16 at 2;

Doc. 127-17 at 3). Accordingly, this factor does not support Massachusetts as the place of

contracting, and even if it did, the Restatement counsels that “[s]tanding alone, the place of

contracting is a relatively insignificant contact.” Restatement (Second) of Conflict of Laws

§ 188, cmt. e.

The place of negotiation appears to have been Massachusetts. Cameron & Colby, First

State’s affiliate and managing general agent, was headquartered in Boston and issued the

Frist State Policies to either XTRA, Inc. or XTRA Corp. in Boston. Moreover, the XTRA

Entities relied on Frederick E. Penn Insurance Agency, based in Needham, Massachusetts, to

broker the FFIC Policies. (Doc. 127-13 at 4). The third and fourth factors under Section 188,

the place of performance and the location of the subject matter of the contract, do not

conclusively establish Illinois or Massachusetts as the state with a more compelling contact,

although the FFIC Policies identify considerably more insured locations in Illinois than in

Massachusetts. (Doc. 127-13 at 43-45; Doc. 127-14 at 25-27; Doc. 127-15 at 29-32; Doc. 127-16

at 11-14; Doc. 127-17 at 9-12). As previously noted, the policies covered risks across the United

States and Canada, which undermines any contention that either Massachusetts or Illinois

had a more significant contact to the parties or the transactions at issue. See Lines, 2008 WL

2908053, at *2 (“The liability policy was nationwide in scope so it is impossible to identify any

single state as the place of performance or the location of the subject matter of the contract.”).

And finally, the consideration of the parties’ respective domiciles, places of incorporation,

and places of business implicates several states, including but certainly not limited to

Massachusetts. During the relevant policy periods, X-L-Co. had its principal place of business

in Massachusetts, as did First State, through its relationship with Cameron & Colby. But

XTRA Corp. and XTRA Intermodal are incorporated in Delaware, XTRA LLC is a Maine

limited liability company, and none of these three entities have their principal place of

business in Massachusetts. Moreover, Associated Indemnity and American Insurance are

incorporated in California and Ohio respectively, and both are corporate subsidiaries of FFIC,

a California corporation. Accordingly, this factor does not help identify a state with

particularly compelling contacts to the parties and the transactions at issue.

c. Restatement Section 6

Having determined that neither Section 193 nor Section 188 of the Restatement

(Second) Conflict of Laws resolves the question of whether Illinois or Massachusetts law

should be applied to resolve this dispute, the Court proceeds to analyze the “choice-

influencing factors listed in § 6(2).” Bushkin, 473 N.E.2d at 670. Section 6 offers the following

seven considerations to inform the choice of law analysis: “(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, (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.” Id. at 6(2). Massachusetts applies

these considerations to identify “the State with the most significant relationship to the

transaction and the parties with respect to the issue that presents the conflict of laws.” Comerica

Bank & Trust, N.A. v. Brown & Rosen, LLC, 195 N.E.3d 432, 437 (Mass. App. Ct. 2022) (cleaned

up, emphasis added). Here, the disputed issue is the interpretation of the “sudden and

accidental” exclusion exception. Accordingly, the Court must determine whether Illinois or

Massachusetts has the most significant relationship to this issue. Id. at 437-38. The first four

Section 6 factors mentioned above are particularly probative for the resolution of this choice

of law dispute.

i. The needs of the interstate and international systems

This factor seeks to promote “harmonious relations between states and to facilitate

commercial intercourse between them.” Restatement (Second) of Conflict of Laws § 6, cmt.

d. To that end, “[i]n formulating rules of choice of law, a state should have regard for the

needs and policies of other states and of the community of states.” Id. Here, the Court would

anticipate that Massachusetts courts would be sensitive to the local needs of Illinois and the

extensive remedial work that has been needed within its borders. This type of judicial comity

is particularly appropriate in cases involving environmental pollutions in one state that do

not affect the forum. See A. Johnson, 741 F. Supp. at 301 (under Massachusetts choice of law

rules, the state where the environmental pollution is located “has the single most important

connection to the core issues of the case.”). Indeed, in addressing the needs of the interstate

system in a choice of law analysis, the SJC has recognized that “[d]eference to sister state law

in situations in which the sister state’s substantial contacts with a problem give it a real

interest in having its law applied will at times usefully further this part of the law’s total

task.” Cosme v. Whitin Mach. Works, Inc., 632 N.E.2d 832, 836 (Mass. 1994) (internal quotation

marks and ellipsis omitted). There can be little doubt that Illinois has a substantial interest in

the environmental pollution at the OAZ Superfund Site. This interest must be balanced

against Massachusetts’ interest in certain insurance policies involving some parties who had

their principal place of business in Massachusetts during the late 1970s and early 1980s, and

others who had no such connection to the Commonwealth. Against this backdrop, the Court

is not persuaded that the needs of the interstate system are better served by the application

of Massachusetts law to this coverage dispute. Rather, it is apparent that the needs of the

interstate system favor the application of Illinois law.

ii. The relevant policies of the forum

The Court is aware of no Massachusetts policy that compels or even supports the

application of its law to the interpretation of the “sudden and accidental” exclusion exception

in this case. Surely, in adopting its interpretation of this exception in Belleville, the Supreme

Judicial Court expressed its policy preference on behalf of the Commonwealth of

Massachusetts that insurance companies should be protected from claims for “pollution-

related damage which should reasonably have been foreseen.” Millipore, 115 F.3d at 24.

But it is doubtful that the Supreme Judicial Court expected this interpretation to have

the type of extraterritorial effect that the Insurers press here. Indeed, on this exact point, the

Restatement observes that courts are “under no compulsion to apply the statute or rule to

such out-of-state facts since the originating legislature or court had no ascertainable

intentions on the subject.” Restatement (Second) of Conflict of Laws § 6, cmt e. Of course, this

is not to say that Belleville would never apply outside of the borders of Massachusetts.

Certainly, if the parties to an insurance policy choose Massachusetts law to govern the policy,

or if the contacts to Massachusetts are sufficiently compelling to warrant the application of

Massachusetts law, then Belleville could displace another state’s interpretation of the “sudden

and accidental” exclusion exception. But here, the parties have not identified, nor is the Court

aware of any Massachusetts policy that supports the displacement of Illinois law under the

circumstances of this case. Thus, this factor does not weigh in either Massachusetts’ or

Illinois’ favor.

iii. The relevant policies of other interested states and the relative interests of

those states in the determination of the particular issue

As the state confronted with a major environmental pollution within its borders,

Illinois can fairly be considered a state whose interest should be considered and weighed

relative to those of Massachusetts in this choice of law analysis. It is, of course, not surprising

that Illinois’ public policy seeks to protect the state’s environmental resources for present and

future generations. Indeed, the Illinois Constitution expressly provides that “[t]he public

policy of the State and the duty of each person is to provide and maintain a healthful

environment for the benefit of this and future generations.” Ill. Const. of 1970, art. XI, § 1.

Moreover, Section 2 of Article 11 states that “[e]ach person has the right to a healthful

environment.” Ill. Const. of 1970, art. XI, § 2. These broad public policy objectives are certainly

implicated by an environmental pollution in Illinois. Historical operations at the OAZ Facility

Area have caused lead, cadmium, zinc, arsenic, and manganese to spread to the soils,

sediments, and groundwater. To this day, residential and commercial areas address drainage

from the OAZ Facility Area, and the EPA expects responsive actions to be needed well into

the future. Illinois’ interest in the remediation of this pollution can hardly be overstated, and

this interest carries significant weight in a choice of law analysis, because “it is fitting that the

state whose interests are most deeply affected should have its local law applied.” Restatement

(Second) of Conflict of Laws § 6, cmt. f.; see also Comerica, 195 N.E.3d at 437 (selecting

Massachusetts law based on its more compelling regulatory interest in the matter even

though some interested parties were domiciled in Minnesota and related settlement

agreement was negotiated and executed in Minnesota).

But notwithstanding Illinois’ rather obvious interest in the remediation of the OAZ

Superfund Site, the Court recognizes that the issue in this litigation is not if environmental

remediation will take place, but rather, who will be responsible for paying for it. For that

reason, the outcome of this choice of law analysis is unlikely to defeat Illinois’ public policy

objective of environmental protection. As a result, the Court finds that the relevant policies

of other interested states do not favor the application of either Massachusetts or Illinois law.

iv. The protection of justified expectations

Massachusetts courts attribute significant weight to the protection of justified

expectations in a choice of law analysis. In Bushkin, the SJC explained that “[w]here relevant

contacts and considerations are balanced, or nearly so, we are inclined to resolve the choice

by choosing that law which would carry out and validate the transaction in accordance with

intention, in preference to a law that would tend to defeat it.” 473 N.E.2d at 671 (internal

quotation marks omitted). Although it is difficult, if not impossible, to accurately pinpoint

the parties’ justified expectations more than 40 years after the fact, a review of the evolution

of the “sudden and accidental” exclusion exception in Massachusetts offers important context

to the parties’ justified expectations at the time of contracting.

In New England Gas & Elec. Ass’n v. Ocean Acc. & Guarantee Corp., the SJC engaged a

“sudden and accidental” coverage modification for the first time. 116 N.E.2d 671 (Mass. 1953).

There, the insured, a producer and distributor of electricity, sought coverage for damage to

a turbine spindle, which required the turbine to be completely shut down. Id. at 675. The

spindle had been subjected to increased stress because the turbine’s condenser springs had

been improperly installed approximately eleven months before the damage to the spindle

was discovered. Id. at 678. The insurance policy in question provided coverage for “a sudden

and accidental breaking, deforming, burning out or rupturing” of an insured piece of

machinery. Id. (cleaned up). The SJC found that an auditor had construed the policy too

narrowly by concluding that coverage was not available because the damage was “gradual

and not sudden,” based on the erroneous setting of the condenser springs. Id. at 678-79. In

analyzing the policy’s coverage, the court found that the words “sudden and accidental”

“describe a result” (damage to an object) and “do not refer to any means by which that result

has been brought about.” Id. at 679. The court also offered the following observation:

If we lay to one side any idea of the rapidity or quickness in the actual cracking

of the spindle and give to the term sudden its primary meaning according to

the lexicographers as a happening without previous notice or with very brief notice,

or as something coming or occurring unexpectedly, unforeseen, or unprepared for,

then the cracking of the spindle comes within this concept of the word, for it is

plain from the report of the auditor that the mechanical defect which caused

the cracking arose through no fault and even without the negligence of the

insured and that the latter had no knowledge of the existence of the defect,

much less any reason to anticipate that it would cause damage to the turbine.

In fact, no one knew the cause of the damage until after the spindle had been

replaced. The damage to the spindle could not be reasonably anticipated, and its

occurrence was unexpected and unforeseen and consequently sudden in the ordinary

meaning of the word.

Id. at 680-81 (emphases added). This observation suggests a focus on the foreseeability of an

event, rather than its temporal characteristics, in determining whether it can be considered

“sudden and accidental.” And this plain reading of New England Gas would appear to align

more closely with Illinois’ current interpretation of the “sudden and accidental” exclusion

exception, as opposed to that of Massachusetts. Ultimately, what the New England Gas court

meant in its analysis of the word “sudden” is academic because the case did not resolve the

interpretative question of what it means for a cause of damage to be “sudden and accidental.”

But it is equally apparent that the SJC did not embrace the “temporal element” requirement

of the “sudden and accidental” coverage modification that later became the critical holding

in Belleville.

Thirty-two years after New England Gas, the Massachusetts Appeals Court

encountered another insurance coverage dispute that turned on the “sudden and accidental”

exclusion exception. Shapiro v. Pub. Srv. Mut. Ins. Co., 477 N.E.2d 146 (Mass. App. Ct. 1985),

rejected by Belleville, 555 N.E.2d at 573. Shapiro involved an oil leak from the insured’s

underground fuel tank which ultimately reached surrounding waterways. Id. at 148. The

insurer argued that the oil leak was not “sudden” within the meaning of the policy because

it was the result of a progressive deterioration of the oil tank on the insured’s property. Id. at

150. The court disagreed, citing two primary reasons. First, the words “sudden and

accidental,” according to the Appeals Court were not “free from ambiguity.” Id. at 149. This,

in turn, required the court to resolve the ambiguity in favor of coverage. Id. at 149. Second,

Shapiro rejected the contention that the event that caused the damage had to be a “dramatic

catastrophe” in order to qualify as “sudden” under the insurance policy. Id. Rather, the court

explained, “the word ‘sudden’ as used in liability insurance need not be limited to an

instantaneous happening.” Id., quoting Allstate Ins. v. Klock Oil Co., 73 A.D.2d 486, 488 (N.Y.

App. Div. 1980). For those reasons, the court held that the policy in question provided

coverage for the insured, notwithstanding the gradual nature of the underlying cause of the

damage. Shapiro, 477 N.E.2d at 150.

The takeaway from New England Gas and Shapiro is that the construction of the

“sudden and accidental” exclusion exception was, at best, ambiguous and unsettled before

1990, when Belleville was decided. This timeline is critical to a proper understanding of the

parties’ justified expectations when they agreed to the terms in the policies at issue in the late

1970s and early 1980s. Illinois and Massachusetts are in accord with the principle that

ambiguities in insurance policies are construed in favor of coverage. See Metropolitan Prop. &

Cas. Ins. Co. v. Morrison, 951 N.E.2d 662, 671 (Mass. 2011) (“When confronting ambiguous

language, we construe the policy in favor of the insured and against the drafter, who is

invariably the insurer.”); Outboard, 607 N.E.2d at 1217 (in Illinois, “[a]mbiguous terms are

construed strictly against the drafter of the policy and in favor of coverage.”). The relevant

policies cover periods from 1975 to 1983. At that time, neither Massachusetts nor Illinois had

endorsed the interpretation of the “sudden and accidental” exclusion exception that the

Insurers seek to apply here. It is thus highly doubtful that the current interpretation of the

exclusion exception as articulated in Belleville was among the parties’ justified expectations.

Indeed, two years after the last policy term at issue in this case expired, the Massachusetts

Appeals Court held that the “sudden and accidental” exclusion exception was ambiguous

and that the damage-causing event need not be “instantaneous”—an apparent rejection of

the “temporal element” that Belleville later adopted. Shapiro, 477 N.E.2d at 150. And with the

ambiguous construction of the words “sudden and accidental” at the time, the parties, if

anything, would have expected the ambiguity to be resolved in favor of coverage.

Even if one assumes that the parties’ justified expectations incorporated

Massachusetts law, the maxim that coverage ambiguities are construed against the insurer

has withstood the test of time in Massachusetts. See Woogmaster v. Liverpool & London Globe

Ins. Co., 45 N.E.2d 394, 396 (Mass. 1942) (“[I]f the terms of the policy are ambiguous then

every doubt is to be resolved against the insurer”). The only logical takeaway from this brief

historical overview is that the parties would have expected the “sudden and accidental”

exclusion exception to cover damage arising from discharges that were “unexpected,

undesigned, and unintended,” New England Gas, 116 N.E.2d at 679, without regard to their

temporal characteristics.

The Insurers have argued that the parties’ justified expectations would have favored

the application of Massachusetts law because, at the time, the Commonwealth adhered to the

rule of lex loci contractus—the law of the place of contracting. (Doc. 125 at 18). Bushkin, of

course, abandoned the lex loci rule in favor of the functional approach discussed in this Order.

But because Bushkin had not been decided at the time, so the Insurers’ argument goes, their

expectation would have been to apply Massachusetts law. The Court disagrees. Bushkin did

not simply consider the parties’ justified expectations with respect to the question of which

state’s substantive law to apply. Its discussion was more targeted than that. Bushkin

addressed the parties’ justified expectations with respect to the disputed issue at hand—

whether the statute of frauds of New York or Massachusetts applied to an alleged oral

contract. Bushkin, 473 N.E.2d at 670-71. That means that this Court must consider the parties’

justified expectations with respect to the scope of the “sudden and accidental” pollution

exclusion, not simply with respect to the question of which state’s law applies more

generally.8

Here, the application of Illinois law, rather than that of Massachusetts would validate

the parties’ justified expectations. Bushkin treated the validation of the parties’ justified

expectations as a dispositive tiebreaker after finding that the other choice-influencing factors

were balanced. See id. at 671 (choosing the law of the state that validates the parties’ intention

at the time of contracting, rather than the law that would defeat it). Here too, none of the

other considerations in Sections 193, 188 and 6 compels the application of either state’s law.

For this reason, the Court finds that the validation of the parties’ justified expectations

dispositively tips the scale in favor of the application of Illinois law.

v. The remaining Section 6 considerations

The remaining Section 6 considerations do not carry significant weight in this analysis.

The basic policies underlying the particular field of law (Section 6(2)(e)) come into play “in

situations where the policies of the interested states are largely the same but where there are

nevertheless minor differences between their relevant local law rules.” Restatement (Second)

of Conflict of Laws § 6, cmt. h. This is not such a situation because the policies of Illinois and

Massachusetts with respect to the “sudden and accidental” exclusion exception are not

“largely the same.” Thus, there is no way to harmonize these competing interpretations in

this choice of law analysis. See Lines, 2008 WL 2908053, at *6 (“These differences in law are

the result of different policy approaches to these issues taken by the appellate courts in these

8 Even if the Court accepted the premise that the consideration of the parties’ justified expectations focused solely

on the question of which state’s law governed, and further assuming that the Insurers are correct that the

expectation would be for Massachusetts law to apply, the inquiry would lead to the same endpoint. At the time,

Massachusetts law did not offer the Insurers the favorable interpretation of the “sudden and accidental”

exclusion exception that they seek to apply here.

two states. These fundamental policy differences cannot be bridged or harmonized through

the choice of law.”). The considerations of certainty, predictability, and uniformity of result

(Section 6(2)(f)) are “of particular importance in areas where the parties are likely to give

advance thought to the legal consequences of their transactions.” Restatement (Second) of

Conflict of Laws § 6, cmt. i. Here, it can fairly be said that the Insurers gave advanced thought

to the consequences of the language in their policies, but as noted in the discussion on the

parties’ justified expectations, the application of Illinois law is most likely to validate the

considerations at play at the time. As a result, the Court is not persuaded that the application

of Illinois law undermines the certainty, predictability, and uniformity that the parties sought

to achieve at the time of contracting. Finally, the consideration of the ease in the

determination and application of the law to be applied (Section 6(2)(g)) carries very little

weight (if any) because it is aspirational rather than substantive. See id., cmt. j (“Ideally,

choice-of-law rules should be simple and easy to apply. This policy should not be

overemphasized, since it is obviously of greater importance that choice-of-law rules lead to

desirable results. The policy does, however, provide a goal for which to strive.”).

CONCLUSION

For these reasons, the Court concludes that Illinois law governs the interpretation of

the insurance policies at issue in this case. The XTRA Entities’ Motion on Choice of Law

(Doc. 127) is GRANTED. The Insurers’ Joint Motion on Choice of Law (Doc. 125) is DENIED.

IT IS SO ORDERED.

DATED: March 29, 2024 Tl )

wep Metin

NANCY J. ROSENSTENGEL

Chief U.S. District Judge

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