Opposition Brief — Borden, Inc. v. Affiliated FM Insurance

poe P Supreme Court, U.S.

7 FILED

No. 88-1986 juL 7 1888

JOSEPH F. SPANIOL, JR.

IN THE | a CLERK

Supreme Court Of Che United States

OCTOBER TERM, 1988

BORDEN, INC.

Petitioner,

Vy.

AFFILIATED FM INSURANCE COMPANY,

Respondent.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BRIEF FOR RESPONDENT |

MICHAEL A. PoPE

(Counsel of Record)

DONALD B. HILLIKER

LINDA J. CHASE

PHELAN, Pope & JOHN, LTp.

180 North Wacker Drive

Suite 500

Chicago, Illinois 60606

312/621-0700

-and-

THOMAS L, LONG

BAKER & HOSTETLER

65 East State Street

Columbus, Ohio 43215

614/228-1541

i

QUESTION PRESENTED

Whether a federal court exercising diversity jurisdiction is

bound by the decisions of a state intermediate appellate court

when determining how a state’s highest court would rule on

a matter of state law.'

‘Pursuant to Rule 28.1, respondent, Affiliated FM Insurance Company,

States that it has two parents: Allendale Mutual Insurance Company and

Allendale Associates, Inc. It has no subsidiaries and no afhliate companies.

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TABLE OF CONTENTS

PAGE

QUESTION PRESENTED ..............-.sscseseeseeeeseseees i

I OP PAE BP PRIORE BREED vscsccessscsessccscncssesesasssaces lil

NED GPE 0 UNS SAB... cecccscccscssccscsessnscess I

1. The Underlying Litigation ..........................04. l

Be I PII i cnccsceienevtessneversssoncesscnasave 2

- 3. Borden’s Claims Under the Policy .................. 3

MD, TEE FYOCCCCINGS BOIOW ......0....05..ccccsccccesscesseseeees 3

ARGUMENT OPPOSING CERTIORARI............ 4

ens siiisidcavaxsiaosntndiyeiatsrensennsrennene 10

ill

TABLE OF AUTHORITIES

Cases Page

Bailey v. V & O Press Co., Inc., 770 F.2d 601 (6th

Ce. Re vcccutliscianitndasnnustenedbavannacebseenaainaaamaeas 7,8

Buckeye Union Insurance Co. v. Liberty Solvents

Chemical Co., Inc., 17 Ohio App. 3d 127,

tek © Eras), SU 5,8

Commissioner of Internal Revenue v. Bosch, 387

US, Ga68F B Gk. 2 re Cee acerca 6, 8

Continental Insurance Co. v. Northeastern Pharma-

ceutical & Chemical Co., Inc., 842 F.2d 977 (8th

Cir. 1988), cert. denied, 109 S. Ct. 66 (1988)...... 12

Erie v. Tompkins, 304 U.S. 64 (1938)... ee 6, 8,9

Jackson vy. Metropolitan Life Insurance Co., 34 Ohio

St. 136, 206 WE. 20 G70 GT vseciccsiercrerncs 7

Maryland Casualty Co. v. Armco, Inc., 822 F.2a

1348 (4th Cir. 1987), cert. denied, 108 S. Ct. 703

CRI ecrepiteatacckieed ceniipnaacaees nuaseaanianditrnta 12

Olmstead v. Lumbermen’s Mutual Insurance Co.,

22 Ohio St. 2d 212, 259 N.E.2d 123 (1970)........ 8

Rhoades v. Equitable Life Assurance Society, 54

Ohio St. 2d 45, 374 N.E.2d 643 (1978) 0... cece 7

Rider v. Cherokee Insurance Co., 635 F. Supp. 699

ee ss Ccintsatramiarsebdaneal eek 10

West v. American Telephone & Telegraph Co., 311

Fes eae a cotcneids ch pieraniageanscanesermtgunonecitens 6, 8

Willoughby Hills v. Cincinnati Insurance Co., 9

Ohio St. 3d 177, 459 N.E.2d 555 (1984) ............. 8,9

Wilmington Island Construction Co. v. Cincinnati

Insurance Ca., 179 Ga. App. 477, 347 S.E.2d 308

III ges ncctrceccceneunas sev cacvcnsesuis consis costanatabe aaa mee ticle 10

Rules

United States Supreme Court Rule 17.................... 5. 6

Ohio Rules of Civil Procedure, Ruie XVI............... 10, 11

= vy”

No. 88-1986

IN THE

Supreme Court of Che United States

OCTOBER TERM, 1988

BORDEN, INC.

Petitioner,

ws

AFFILIATED FM INSURANCE COMPANY,

Respondent.

ON WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS

FOR THE SIXTH CIRCUIT

BRIEF FOR RESPONDENT

Respondent Affiliated FM Insurance Company (“Affili-

ated”) respectfully requests the Court to deny Petitioner

Borden, Inc.’s (“Borden”) request for a writ of certiorari to

review the judgment of the United States Court of Appeals

for the Sixth Circuit entered on January 10, 1989 and the

denial of the petition for rehearing entered on March 7, 1989.

STATEMENT OF THE CASE

The Underlying Litigation

In April 1982, Amoco Oil Company (“Amoco”) brought

Suit against Borden in the United States District Court for

the Southern District of Texas as a result of Borden’s sale to

Amoco of real property containing a 35-feet high pile of

2

radioactive phosphogypsum waste covering some 30 to 40

acres. Radioactive phosphogypsum waste was a by-product

of Borden’s phosphoric acid manufacturing process. Borden

has admitted that it placed the waste on the property during

the regular course of its and its predecessor’s business opera-

tions from the mid-1950’s through 1970. Amoco claimed that

Borden had fraudulently concealed the radioactive nature of

the waste when it sold the property to Amoco in 1977. Amoco

sued to rescind the sale, or otherwise to require Borden to

bear the cost of removing the waste from the property.

Borden notified Affiliated of the Amoco suit in March 1984

and demanded, pursuant to Affiliated’s alleged obligations

under an umbrella excess liability insurance policy issued to

Borden, that Affiliated indemnify Borden for any amounts it

might be held liable to pay Amoco. Borden conducted its

own defense of the action. In February 1985, shortly before

trial, Borden demanded that Affiliated “participate” in the

defense of the action.

The Affiliated Policy

The policy at issue requires Affiliated to indemnify Borden

for its losses which arise out of personal injury or property

damage caused by an “occurrence.”” Specifically excluded

from coverage under the policy’s “pollution exclusion” are

losses arising from the discharge of waste materials upon

land. However, the exclusion does not bar coverage if the

discharge is “sudden and accidental.”* The policy also bars

coverage for injury to premises “alienated” or sold by the

* In Affiliated’s policy, “occurrence” is defined as “an accident includ-

ing continuous or repeated exposure to conditions which results in damage

neither expected nor intended from the standpoint of the insured.”

*The “pollution exclusion” provides in relevant part that the policy

shall not apply:

to. . . property damage arisir.g out of the discharge, dispersal, release

or escape of... waste materials. . .upon land... . but this exclusion

does not apply if such discharge, dispersal, release or escape is sudden

and accidental.

Borden's footnote 2 on page 4 of its Petition incorrectly quotestheexclusion. |

as inapplicable if the discharge is-either “sudden” or “accidental.” In fact,

—the-policy requires both elements to be proved in order to avoid the

pollution exclusion.

3

insured when the injury arises out of the premises itself or

any part thereof.‘

The policy further requires Affiliated to defend Borden

against any claim made against it, even if fraudulent, so long

as the claim is covered by the policy. Thus, if there is no

covered “occurrence” or if a specific exclusion bars coverage,

there is no duty to defend the claim.

Borden’s Claim Under the Policy

Borden claimed that because a count of Amoco’s complaint

sought recovery under CERCLA? for the costs of removing

the phosphogypsum from the property, Affiliated’s policy

should cover any loss to Borden as “property damage.”

Affiliated disclaimed coverage for the Amoco claim for several

reasons, including that both the “pollution exclusion” and

the “premises alienated exclusion” barred coverage. Affiliated

disclaimed any obligation to defend Borden, among other

reasons because the policy did not cover the Amoco claim

and, in any event, Borden had not requested Borden to defend

the suit.

The Proceedings Below

In April 1985, Affiliated filed suit for declaratory judgment

in the District Court of Galveston County, Texas. At about

the same time. Borden filed suit for declaratory judgment in

the Ohio Court of Common Pleas. Affiliated removed the

action to the United States District Court for the Northern

District of Ohio on the basis of the parties’ diversity of

citizenship® and voluntarily dismissed the Texas suit.

The parties filed cross-motions for summary judgment

seeking a declaration of their respective rights and obligations

* The “premises alienated exclusion” provides in relevant part that the

policy shall not apply to injury or destruction of:

premises alienated by the named insured, arising —out of

such .. . premises or any part-of such .. . premises.

____*-€omprehensive Environmental Recovery, Compensation and Liabil-

ity Act of 1980, 42 U.S.C. § 8601 ef seq.

® Borden is a New Jersey corporation with its principal place of

business in Columbus, Ohio. Affiliated is a Rhode Island corporation with

its principal place of business in Johnston, Rhode Island.

4

under the policy. The District Court granted Affiliated’s

motion and denied Borden’s, holding that both the pollution

and premises alienated exclusions precluded coverage under

the Affiliated policy and that, therefore, there was neither a

duty to indemnify nor a duty to defend Borden.

In granting Affiliated’s motion, the District Court consid-

ered two decisions of the Ohio Court of Appeals which held

that the pollution exclusion is ambiguous and, therefore, did

not apply to preclude coverage. After reviewing related Ohio

Supreme Court decisions, case law from other jurisdictions,

scholarly works, and dictionary definitions, the District Court

was “not persuaded to adopt the approach of” the Ohio Court

of Appeals:

While the opinion of the Ohio Court of Appeals in

Buckeye is entitled to some deference, it is not absolutely

binding on this Court. See Commissioner v. Estate of

Bosch, 387 U.S. 482, 465 (1967). This Court is convinced

that the Ohio Supreme Court would not adopt the con-

struction of the pollution exclusion set forth in Buckeye.

Decision and Order, Appendix pp. B-4, 5.

The Court of Appeals for the Sixth Circuit affirmed the

judgment of the District Court without opinion. The Court

of Appeals also denied Borden’s petition for rehearing.

ARGUMENT OPPOSING CERTIORARI

Rule 17 of the Rules of the Supreme Court of the United

States provides that “review on writ of certiorari is not a

matter of right, but of judicial discretion, and will be granted

only when there are special and important reasons therefor.”

[Emphasis supplied.] The rule states in relevant part that the

Supreme Court may grant review:

When a state court or a federal court of appeals has

decided an important question of federal law which has

not been, but should be, settled by this Court, or has

decided a federal question in a way in conflict with

applicable decisions of this Court. [Emphasis supplied. ]

5

Contrary to petitioner Borden’s assertion, the Court of Ap-

peals did not decide any question in a way which conflicts

with a decision of this Court.

It has long been settled by this Court that federal courts

exercising diversity jurisdiction must apply state law

“whether the law of the state shall be declared by its Legisla-

ture in a statute or by its highest court in a decision .. .”

Erie R. Co. v. Tompkins, 304 U.S. 64, 58 S. Ct. 817, 822

(1938) (emphasis supplied). This Court has also established

that “[w]here an intermediate appellate state court rests its

considered judgment upon the rule of iaw which it announces,

that is a datum for ascertaining state law which is not to be

disregarded by a federal court unless it is convinced by other

persuasive data that the highest court of the state would decide

otherwise.” West v. American Telephone & Telegraph Co.,

311 U.S. 223, 61 S. Ct. 179, 183 (1940) (emphasis supplied).

Furthermore, this Court has held that:

'

[While the decrees of “lower state courts” should be

“attributed some weight . . . the decision [is] not control-

ling . . .” where the highest court of the State has not

spoken on the point. [Citations omitted. ]

Commissioner of Internal Revenue v. Bosch, 387 U.S. 456, 87

S. Ct. 1776, 1782 (1967).

Consistent with the above long-standing decisions, the

Sixth Circuit has ruled:

If the highest court has not spoken, the federal court

must ascertain from all available data what the state law

is and apply it. The sources of data which may guide our

inquiry include the decisional law of the Ohio Supreme

Court in analogous cases and relevant dicta in related

cases. ... The decisional law of Ohio appellate courts

. and Ohio trial courts ... are accorded weight,

although a federal court is not bound by lower court

determinations if convinced by other data that the state’s

highest court would determine otherwise. ... In addi-

tion, consideration may be given to positions expressed

in restatement of law, . .. law review commentaries

6

. . . and decisions from other jurisdictions or the “major-

ity” rule.

Bailey v. V & O Press Co., Inc., 770 F.2d 601 (6th Cir.1985).

[Emphasis supplied. ]

In this case, the District Court fully considered the two

decisions of the Ohio Court of Appeals. However, after

surveying the cases on point throughout the country, consul-

ting law reviews, other recent scholarly works, the dictionary

definition of the words “sudden” and “accidental,” and most

importantly, related decisions of the Ohio Supreme Court,

the District Court was persuaded “that the Ohio Supreme

Court would not adopt the construction of the pollution

exclusion set forth in Buckeye.” Decision and Order, Appen-

dix p. B-5. The district court specifically found:

The Ohio Supreme Court has stated that:

It is well-settled in Ohio that insurance policies should

be enforced in accordance with their terms as are other

written contracts. Where the provisions of the policy

are clear and unambiguous, courts cannot enlarge the

contract by implication so as to embrace an object dis-

tinct from that originally contemplated by the parties.

Rhoades v. Equitable it mean Society, 54 Ohio St.

2d 45, 374 N.E.2d 643, 644 (1978). See also Jackson vy

Metropolitan Life Insurance Co., 34 Ohio St. 2d 138, 296

N.E.2d 679 (1973). Moreover, words in an insurance

policy are to be given their commonly accepted meaning

unless that would lead to an absurd result. Olmstead v.

Lumbermens Mutual Insurance Co., 22 Ohio St. 2d 212,

259 N.E.2d 123 (1970).

Decision and Order, Appendix p. B-5.

Thus, consistent with the decision of the Sixth Circuit in

Bailey and the decisions of this Court in Erie, West, and

Bosch, the District Court declined to follow two Ohio Court

of Appeals decisions in favor of more persuasive authority

and the long-standing rules of construction set forth in related

opinions of the Ohio Supreme Court. Upon review, the Sixth

Circuit found that there had been no error. Ruling,

Appendix p. A-2.

In its Petition to this Court, Borden wrongly states that the

courts below substituted their own judgment for the judgment

7

of the Ohio Supreme Court in Willoughby Hills v. Cincinnati

Ins. Co., 9 Ohio St. 3d 177, 459 N.E.2d 555 (1984). In

Willoughby, the court held that an insurance company must

defend a suit if the claim is even “potentially or arguably”

within the scope of the policy. The court below found that

the claims made in the Amoco suit against Borden were

plainly excluded from coverage “and, therefore, Affiliated has

no contractual obligation to defend or indemnify Borden.”

Decision and Order, Appendix p. B-6. The court’s holding

that there was no duty to defend Borden was thus fully

consistent with the decision in Willoughby because the claims

were not “potentially or arguably” within the scope of the

Affiliated policy.

There is, therefore, no need here for the Court to review

this case for consistency with Erie. The District Court

followed all relevant Ohio Supreme Court decisions and

considered fully all lower court decisions on point. The court

decided not to follow the lower court decisions, but only after

careful analysis of the issues and review of all the relevant

decisic:ial law and scholarly works. That is precisely what

this Court anticipated in Erie and set forth clearly in later

related decisions.

Moreover, even if the Court were to grant review of the

decision below and were ultimately to reverse those portions

of the decision which were based upon .® alleged violation

of Erie, the outcome of the case would be the same. Borden

admits in its Petition that there is an “absence of Ohio

authority” construing the premises alienated exclusion, on

which the court below also based its decision. Petition p. 6,

n. 5. Since there is no Ohio law directly on point which the

court below could have followed, it was entirely appropriate

for the court to construe the exclusion in accordance with

rules of construction set forth in related cases decided by the

Ohio Supreme Court. Decision and Order, Appendix

p. B-7. This Court should not be asked to devote its resources

to deal with issues which will have no effect on the outcome

of a case.

8

Borden further asserts in its Petition that the court below

should have followed the “overwhelming non-Ohio author-

ity” allegedly holding that the premises alienated exclusion

is inapplicable in similar circumstances. Petition, p. 6,

n. 5. Borden’s position is untenable for two reasons. First,

a federal court sitting in a diversity case is under no obligation

to follow decisions from jurisdictions unrelated to the case.

Second, the few reported cases construing the premises alien-

ated exclusion support the decision below and hold that the

exclusion unambiguously applies to preclude coverage for

claims of damage to property which has been sold by the

insured toathird party. Rider v. Cherokee Insurance Co., 635

F. Supp. 699 (E.D. Pa. 1986); Wilmington Island Construction

Co. v. Cincinnati Ins. Co., 179 Ga. App. 477, 347 S.E. 2d

308 (1986). Those cases cited in Borden’s Petition discuss

the “owned property exclusion,” not the “alienated premises

exclusion,” and hold only that where contamination on prop-

erty owned by the insured damages or threatens to damage

property owned by a third party, the “owned property exclu-

sion” will not preclude coverage for the cost of cleaning up

the contamination. This is quite different from the situation

where contaminated property owned by the insured is trans-

ferred by sale or otherwise to a third party who then makes

a claim against the insured for property damage to that very

property. It is this latter situation, the very case presented

by Amoco’s claim against Borden, that the premises alienated

exclusion was designed to cover.

Borden also requests the Court to review the Court of

Appeals’ failure to utilize “the recently adopted Ohio certifi-

cation procedure, Rule XVI of the Ohio Rules of Civil

Procedure, to request that the Ohio Supreme Court advise it

with respect to that state’s law.” Petition, p.7.’ Rule XVI,

Section | provides:

The Supreme Court may, at its discretion, answer ques-

tions of law certified to it by the Supreme Court of the

’Only the Court of Appeals could have certified any question of law

to the Ohio Supreme Court in this case because the Rule permitting the

Ohio Supreme Court to answer questions of law certified to it by the federal

courts was enacted effective July 15, 1988, months after the District Court

had issued its Decision and Order.

9

United States, a Court of Appeals of the United States,

or a United States District Court. This rule may be

invoked when the certifying court determines that, in a

proceeding before it, there are questions of law of this

state which may be determinative of the cause and as to

which it appears to the certifying court there is no

controlling precedent in the decisions of this Supreme

Court. |

It is clear from the language of the rule that it applies

only to permit the Ohio Supreme Court to accept questions

certified by a federal court. It does not, and cannot, be

applied to require any federal court to certify a question of

law to the Ohio Supreme Court. Such certification is purely

a discretionary matter.

Moreover, Borden never even requested the Court of Ap-

peals to consider certifying the question to the Ohio Supreme

Court until after Borden’s appeal had been denied. Now

Borden asks this Court to devote its resources to review a

discretionary matter which was never an issue below. The

Court should not be asked to consider Borden’s untimely

request.

Finally, although not mentioned among Borden’s Reasons

For Granting The Writ, Borden lists as one of its Questions

Presented:

4. Whether or not the standard pollution and premises

alienated exclusions are applicable to this case as a matter

of law?

Petition, p. i. However, these state insurance law questions

raise the same kinds of state law issues that this Court has

declined to review in the past. See, e.g., Continental Insurance

Co. v. Northeastern Pharmaceutical & Chemical Co., Inc.,

842 F.2d 977 (8th Cir. 1988), cert. denied, 109 S. Ct. 66;

Maryland Casualty Co. v. Armco, Inc., 822 F.2d 1348 (4th

Cir. 1987), cert. denied, 108 S. Ct. 703.

In sum, Borden has requested this Court to grant certiorari

(1) to review questions of federal law which have long been

settled or which have not been raised by the issues in dispute; - .

(2) to review the Court of Appeals’ failure to exercise a purely

discretionary procedural power; and (3) to resolve insurance

questions which are governed by state law. None of these

requests is specifically delineated or even contemplated by

Supreme Court Rule 17.

10

CONCLUSION

For all the foregoing reasons, Respondent Affiliated FM

Insurance Company requests that this Petition for a Writ of

Certiorari be denied.

Respectfully submitted,

AFFILIATED FM INSURANCE COMPANY

By:

Of Counsel:

MICHAEL A. PoPE

(Counsel of Record)

DONALD B. HILLIKER

LINDA J. CHASE

PHELAN, Pope & JOHN, LTD.

180 North Wacker Drive

Suite 500

Chicago, Illinois 60606

312/621-0700

THOMAS L. LONG

BAKER & HOSTETLER

65 East State Street

Columbus, Ohio 43215

614/228-1541

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