# Appendix — Certain Underwriters at Lloyd's v. Independent Petrochemical Corp.

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Appendix
- **Published:** January 1, 1992
- **Citation:** 503 U.S. 1011

## Text

nl Supreme Court, U.S,
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IN THE OFFIOE OF THE CLERK

Supreme Court of the United States

OCTOBER TERM, 1991

CERTAIN UNDERWRITERS AT LLOYD’S, LONDON, et al.,

‘ Petitioners,

INDEPENDENT PETROCHEMICAL CORPORATION, et al.,
Respondents.

On Petition for Writ of Certiorari to the
United States Court of Appeals for the
District of Columbia Circuit

APPENDIX TO
PETITION FOR WRIT OF CERTIORARI

RICHARD N. DICHARRY MICHAEL NUSSBAUM

PAMELA G. MICHIELS Counsel of Record
PHELPS DUNBAR MARTIN R. BAACH
Thirtieth Floor MarRK J. LEIMKUHLER
Texaco Center NUSSBAUM & WALD
400 Poydras Street One Thomas Circle, N.W.
New Orleans, LA 70130-3245 Washington, D.C. 20005
(504) 566-1311 (202) 833-8900

LUTHER T. MUNFORD
MICHAEL B. WALLACE
PHELPS DUNBAR
Suite 1400
Mirror Lake Plaza
2829 Lakeland Drive
Post Office Box 55507
Jackson, MS 39296-5507
(601) 939-3895

Counsel for Certain Underwriters at Lloyd’s, London
(Counsel for Petitioners Continued on Inside Cover)

a
WILSON - EPES PRINTING Co., INC. - 789-0096 - WASHINGTON, D.C. 20001

DENNIS M. FLANNERY

JOHN R. READ
WILMER, CUTLER & PICKERING
2445 M Street, N.W.
Washington, D.C. 20037-1420
(202) 663-6000

Counsel for Insurance Company
of North America

IGNATIUS JOHN MELITO
SIFF, ROSEN & PARKER, P.C.
233 Broadway
New York, NY 10279
(212) 238-8400

Counsel for First State
Insurance Company

JOHN P. ARNESS

L. ANTHONY SUTIN
HOGAN & HARTSON
Columbia Square
555 Thirteenth Street, N.W.
Washington, D.C. 20004
(202) 637-5600

Counsel for Hartford Accident
& Indemnity Company

JAMES E. Rocap, II]
MARTIN D. MINSKER
NIKI KUCKES
MILLER, CASSIDY, LARROCA &
LEWIN
Suite 500
2555 M Street, N.W.
Washington, D.C. 20037
202) 293-6400
Counsel for Aet t Casualty &
Surety Company

LAWRENCE E. CARR, JR.

MARGARET H. WARNER

KYLE A. KANE
CARR, GOODSON & LEE, P.C.
Suite 790
1919 Pennsylvania Ave., N.W.
Washington, D.C. 20006
(202) 463-6063

Counsel for The Continental
Insurance Company

RICHARD H. GIMER
STEPHEN L. HUMPHREY
KATHY A. UNDERHILL
RICHARD A. IFFT
HOPKINS & SUTTER
888 16th Street, N.W.
Washington, D.C. 20006
(202) 835-8000
Counsel for American
Employers’ Insurance
Company and Employers
Commercial Union
insurance Company

BARRY R. OSTRAGER

ANDREW S. AMER
SIMPSON THACHER & BARTLETT
425 Lexington Avenue
New York, NY 10017-3909
(212) 455-2000

Counsel for The Travelers
Indemnity Company

JAMES P. SCHALLER

M. ELIZABETH MEDAGLIA

TIMOTHY R. DINGILIAN
JACKSON & CAMPBELL, P.C.
Suite 300 South
1120 20th Street, N.W.
Washington, D.C. 20036
(202) 457-1600

Counsel for American Home
Assurance Company, T he
Insurance Company of the
State of Pennsylvania, and

Lexington Insurance Company

ROBERT E. HEGGESTAD

CASEY, SCOTT, CANFIELD
& HEGGESTAD, P.C.

805 15th Street, N.W.
Suite 600
Washington, D.C. 20005
(202) 682-4082

Counsel for Harbor Insurance
Company

JANET R. DAVIS
TRIBLER & ORPETT
30 North LaSalle Street
Suite 2200
Chicago, IL 60602
(312) 201-6400

Counsel for Unigard Security
Insurance Company

JAMES W. GREENE

BROMLEY, GREENE & WALSH
1050 Seventeenth Street, N.W.
Suite 830
Washington, D.C. 20036
(202) 955-3100

Counsel for American
Re-Insurance Company,
Unigard Security Insuranc:
Company, Continental
Casualty Company, and
North Star Reinsurance
Corporation

MICHAEL D. GALLAGHER
JUNE E. GILSON
GERMAN, GALLAGHER &
MURTAUGH
200 S. Broad Street
Suite 500
Philadelphia, PA 19102
(215) 545-7700
Counsel for Stonewall
Insurance Company

TABLE OF CONTENTS

APPENDIX A Page
Opinion of September 13, 1991, of the United
States Court of Appeals for the District of
Columbia Circuit la
APPENDIX B
Memorandum Opinion of September 7, 1988, of
the United States District Court for the District
of Columbia 17a

Order of September 7, 1988, of the United States

District Court for the District of Columbia 201a
\PPENDIX (¢
Order for Entry of Final Judgement of August 23,
1989, of the United States District Court for
the District of Columbia 204a
Judgment of August 25. 1989, of the United States
District Court for the District of Co] imbia 206a

APPENDIX D
Order of November 5. 1991, of the United States
Court of Appeals for the District of Columbia
Circuit Denying Rehearing 208a
Order of November 5, 1991. of the United States

pe . * — ;
Court of Appeals for the District of Columbia

Circuit Denying Rehearing En Bane 209a
APPENDIX E
42 U.S S 96 va 1 > a

APPENDIX F

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APPENDIX A

“ED STATES COURT OF APPEALS
1 DISTRICT OF COLUMBIA CIRCUIT

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Argued March 14, 1991 Decided September 13, 1991

No. 89-5367

INDEPENDENT PETROCHEMICAL CORPORATION, et al.,

Appellants

AETNA CASUALTY AND SURETY COMPANY, ef al.

No. 89-5368

INDEPENDENT PETROCHEMICAL CORPORATION, et al.,
Appellants

AETNA CASUALTY AND SURETY COMPANY, et al.

Appeals from the United States District Court
P

for the District of Columbia

(Civil Action No. 83-03347 )

v) ith VW hom Je rold Osh insk /. She rr W.

They DD 3 , J 2,7 t ’ ' —
ert, Rob H. Shulman and Stephan G. Weil were on

in 89-5367 and 89-5368.

2a

Dennis M. Flannery, with whom W. Scott Blackmer
was on the brief, for appellee Insurance Company of
North America, in 89-5368.

Paul L. Friedman, with whom Anne D. Smith was on
the brief, for appellee, Pacific Indemnity Company, in
89-5367. Lloyd H. Randolph also entered an appearance
for appellee.

Richard B,. Stewart, Assistant Attorney General, Anne
S. Almy, Steven R. Baer and Catherine M. Flanagan,
Attorneys, Department of Justice, were on the brief, for
amicus curiae, in 89-5367 and 89-5368 urging that the
Order granting Summary Judgment to Independent Pe-
trochemical Corporation’s insurers be reversed.

James P. Schaller and Timothy R. Dingilian entered
appearances for appellees, American Home Assurance
Company; Insurance Company of the State of Pennsyl-
vania; and Lexington Insurance Company, in 89-5367
and 89-5368.

James E. Rocap, III, Niki Kuckes and Martin D.
Minsker entered appearances for appellee, Aetna Casu-
alty and Surety Company, in both cases.

Peter J. Schlesinger entered an appearance for appel-
lee, The Travelers Indemnity Company, in both cases.

Robert E.. Heggestad entered an appearance for appel-
lee, Harbor Insurance Company, in both cases.

Joseph F. Cunningham entered an appearance for ap-
pellee, Stonewall Insurance Company, in both cases.

James W. Green entered an appearance for appellees,
American Re-Insurance Company, et al., in both cases.

Before: EDWARDS, WILLIAMS, and RANDOLPH, Circuit
Judges.

Opinion for the Court filed by Circuit Judge RANDOLPH.

3a

RANDOLPH, Circuit Judge: This diversity case reaches
us on appeal after eight years of litigation in the dis-
trict court about matters that have no connection what-
ever to the District of Columbia. The litigation, which
involves a wide array of complex issues, is continuing.
See Independent Petrochemical Corp. v. Aetna Casualty
& Surety Co., 654 F. Supp. 13834 (D.D.C. 1986). With
respect to two claims, the court below entered final judg-
ments pursuant to Rule 54(b) of the Federal Rules of
Civil Procedure, after finding “no just reason for delay.”
The first of these claims presents the question whether,
under the law of the State of Missouri, insurance policies
providing reimbursement for “damages” awarded against
the insured include sums representing the cost of remedy-
ing environmental harm for which the insured is legally
responsible. The second claim, also governed by state
law, raises the question whether a particular policy
issued by Pacific Indemnity Company continued to cover
independent Petrochemical Corporation after it became
a wholly-owned subsidiary of plaintiff Charter Oil Com-
pany, which is owned by plaintiff The Charter Company.

With respect to the first claim, the facts, as set forth
by the district court, are these. In 1971, Independent
Petrochemical agreed to assist one of its Missouri cus-
tomers in disposing of waste material containing “di-
oxin,” a family of chemical compounds that, in sufficient
concentrations, may cause serious harm to humans, ani-
mals and plants. Independent Petrochemical hired Rus-
sell M. Bliss, an independent contractor, to do the job.
Bliss transported more than 20,000 gallons of the hazard-
ous waste in his tank trucks to a facility in Frontenac,
Missouri, where he mixed it with waste oil and emptied
the resulting mixture into storage tanks. Bliss later
sprayed the mixture to suppress dust at various sites in
eastern Missouri. 654 F. Supp. at 1339.

In order to cure the harm resulting from Bliss’s activi-
ties, the federal government and the State of Missouri

undertook environmental cleanup activities costing mil-

4a

lions of dollars. In an action by the United States seek-
ing reimbursement from Bliss, Independent Petrochemi-
-al, its affiliated corporations and others, the United
States District Court for the Eastern District of Mis-
souri held Independent Petrochemical jointly and sever-
ally liable for these costs under section 107(a) of the
Comprehensive Environmental Response, Compensation
and Liability Act of 1980 (“CERCLA”), 42 U.S.C.
$ 9607(a). United States v. Bliss, 667 F. Supp. 1298
(E.D. Mo. 1987). Missouri also sued Independent Pe-
trochemical to recover its cleanup costs. Missouri v.
Independent Petrochemical Corp., No. 83-2670-C (E.D.
Mo. filed Nov. 23, 1988). Independent Petrochemical’s
potential joint liability is estimated to be at least $96 mil-
lion. The company is insolvent.’ Under a plan of liqui-
dation approved by the United States Bankruptcy Court
for the Middle District of Florida, Independent Petro-
chemical will continue to defend the CERCLA claims
against it and pursue coverage from its insurers.

Between 1971, when Independent Petrochemical agreed
to assist its customer in disposing of the hazardous waste
material, and 1983, when this case began, Independent
Petrochemical purchased 67 Comprehensive General Lia-
bility policies from the 23 insurers named as defendants
in the court below.” The Comprehensive General Liability
Policy is a standard-form insurance policy drafted by
insurance representatives under the sponsorship of the
Insurance Service Office, a trade association that provides
drafting assistance to about 3,000 insurers. The parties

1 Independent Petrochemical, The Charter Company and Charter
Oil initiated chapter 11 proceedings in the United States Bank-
ruptcy Court for the Middle District of Florida in 1984. That
court approved a settlement of the federal government’s claims
against The Charter Company and Charter Oil, and approved each
company’s plan of reorganization. The United States later dis-
missed its claims against the two companies. See United States
v. Bliss, 667 F. Supp. 1298, 1302 n.1 (E.D. Mo. 1987).

* Only 21 of the insurers have entered appearances in this court.
The two that have not appeared are in liquidation.

5a
agree that each of these 67 policies contained language
such as the following:

The [insurance] company will pay on behalf of the
insured [Independent Petrochemical] all sums which
the insured shall become legally obligated to pay as
damages because of bodily injury or property dam-
age to which this insurance applies, caused by an
occurrence. ...

None of the policies defined the term “damages.”

In November 1983, two weeks before Missouri brought
its CERCLA action, Independent Petrochemical and its
affiliated corporations brought this suit for a declaratory
judgment. Jurisdiction rested on diversity of citizenship.
28 U.S.C. § 1332. Although Independent Petrochemical
had its principal place of business in Missouri, where the
incidents giving rise to this dispute occurred, and al-
though none of the parties are incorporated in the Dis-
trict of Columbia, the case could be brought here appar-
ently because the District of Columbia’s Superintendent
of Insurance accepts service of process for the defendant
insurers (D.C. CoDE ANN. § 35-423), which is sufficient
to lay venue under the expansive provisions of 28 U.S.C.
$ 1391(a) & (ce). Among other claims, plaintiffs sought a
judgment that the provision just quoted obligates Inde-
pendent Petrochemical’s insurers to cover liability for en-
vironmental cleanup costs incurred by the United States
and Missouri.

While this litigation proceeded, the United States Court
of Appeals for the Eighth Circuit, sitting en banc, held
in a five-to-three decision that under Missouri law “the
term ‘damages’ in the standard-form comprehensive
general liability insurance . . . policy does not include
cleanup costs” (Continental Ins. Cos. v. Northeastern
Pharmaceutical & Chemical Co., 842 F.2d 977, 979 (8th
Cir.), cert. denied, 488 U.S. 821 (1988) (“NEPACCO”) ).
NEPACCO not only dealt with the identical issue now

facing us, but also arose out of the same factual cir-

)
1
r
4

6a

cumstances. The hazardous waste Bliss handled un-
der his agreement with Independent Petrochemical was
NEPACCO’s. The Eighth Circuit’s decision relieved Con-
tinental Insurance Company of any contractual duty
under the policy to reimburse NEPACCO for cleanup
cost incurred by the state and federal governments, costs
NEPACCO was legally obligated to pay under CERCLA.

Because NEPACCO was rendered by the “home cir-
cuit” for Missouri, the district court in this case treated
the decision with deference. Finding no basis for con-
cluding that the Eighth Circuit had ignored clear signals
from the Missouri courts, the court followed the
NEPACCO “precedent with respect to those policies not
containing a choice-of-law provision directing the applica-
tion of the law of some other state.” Independent Petro-
chemical Corp. v. Aetna Casualty & Surety Co., No. 83-
3347, mem, op. at 220 (D.D.C. Sept. 7, 1988) .* The court
therefore granted the insurers’ motions for partial sum-
mary judgment.‘

I

Our duty in this case, as in any diversity case, is to “as-

ain and apply the state law” (Huddleston v. Dwyer,
3822 U.S. 232, 236 (1944)). The parties agree that under
the District of Columbia’s choice of law rules, Missouri
law governs the interpretation of the insurance policies
and of the term “damages.” See Bledsoe v. Crowley, 849
F.2d 639, 641 (D.C. Cir. 1988). The district court so

h Qyrti h« ’ ; ; ] , " . .
held, the parties have not objected, and, finding no ap-
]

‘

parent error, we also view Missouri law as controlling.

BWX Rlectroy Ics. Ine. Uv. ("0 away! Data ('o De. QOG I 98d

%’ Betore NEPACCO, the district court had viewed the term
“damages” under Missouri law as including cleanup costs. Inde
per lent Petrochemical (¢ orp. ljetna Cas alty & Suret Co 654
F. Supp. 1834, 13859 (D.D.C. 1986)

* Several other policies were expressly governed by the law of
New York. The cistrict court, relying on two New York trial court

decisions, held that cleanup costs were included within the term

“damages” in those policies.

CG COL A CT

Té

707, 710 (D.C. Cir. 1991). Missouri’s appellate courts,
however, have not spoken to the issue before us.° The
state’s highest court had an opportunity to do so when
the Third Circuit certified this question to it, but the
Missouri Supreme Court found the certification statute
(Mo. Ann. Stat. § 477.004 (Vernon Supp. 1990)) to be
unconstitutional. See Jones Truck Lines, Inc. v. Trans-
port Co., No. 72650 (Mo. July 13, 1990).

Because Missouri law thus remains unsettled, and be-
cause the Eighth Circuit is the “home” circuit for Mis-
sourl, the defendant insurers urge us simply to adhere to
the NEPACCO decision, much as the district court did.
One rather obvious consideration favors that course. If
our interpretation of Missouri law were at odds with the
Kighth Circuit’s, only the Supreme Court could resolve the
resulting conflict, in the absence of a Missouri appellate
court ruling. While the Supreme Court has on occasion
reviewed decisions in diversity cases to determine whether
a federal appellate court properly applied settled prin-
ciples in ascertaining state law, see, e.g., Exxon Co.,
U.S.A. v. Banque de Paris et des Pays-Bas, 488 U.S. 920
(1988) (order), such occasions are understandably infre-
quent. Intercircuit conflicts could be entirely avoided if,
after the first federal appellate court ruled, other federal
5’ The Circuit Court of the City of Saint Louis, in an opinion ren-
dered after the decision here, held that an insurer’s obligation to
pay “damages” includes reimbursement for environmental clean-up
costs incurred by the government. Cooper Indus., Inc. v. Ameri-
can Mutual Liability Ins. Co., No. 864-00284, mem. op. at 36-37
(Mo. Cir. Ct. Sept. 8, 1989). Rejecting the Eighth Circuit’s view
in NEPACCO, the court determined that under Missouri principles
of insurance contract interpretation, the word “damages” unam-
biguously includes clean-up costs sought by the government under
CERCLA, 42 U.S.C. $ 9607(a). This decision, however, is not con-
trolling on the question of Missouri law because it was not ren-

dered by the state’s court of last resort, or an intermediate appellate
court. See Commissioner of Internal Revenue v. Estate of Bosch,
3887 U.S. 456, 465 (1967); West v. American Tel. & Tel. Co., 311

U.S. 223, 237 (1940)

8a

courts of appeals simply followed that ruling without
exercising any independent judgment. Hrie R. Co. v.
Tompkins, 304 U.S. 64 (1938), however, requires federal
courts in diversity cases “to determine how the highest
court of the state would decide,’ C. WRIGHT, FEDERAL
Courts 873 (4th ed. 1983); since a state’s highest court
would not be bound by a federal court decision interpret-
ing state law, one might question whether other federal
courts of appeals may be. Another consideration is pres-
ent when the initial federal decision is that of the home
circuit, which may be thought to be experienced in inter-
preting the particular state’s laws, even though the “very
essence of Erie is that the bases of state law are pre-
sumed to be communicable” to any federal judge. Salve
Regina College v. Russell, 111 S. Ct. 1217, 1225 (1991).

The potential for forum-shopping within the federal
judicial system caused by intercircuit conflicts over the
meaning of state law, and the assumption of expertise on
the part of the home circuit, have led us to conclude that
a home circuit’s view of state law is entitled to deference.
Abex Corp. v. Maryland Casualty Co., 790 F.2d 119, 125-
26 (D.C. Cir. 1986).° See also Waters v. American Auto.

®In a diversity case, we stand in the shoes of the court of the
forum state, which here is the District of Columbia Court of
Appeals. Bernhardt v. Polygraphic Co., 350 U.S. 198, 203 (1956).
Erie had two objectives—‘‘discouragement of forum-shopping and
avoidance of inequitable administration of the laws.” Hanna v.
Plumer, 380 U.S. 460, 468 (1965). Both aims were accomplished
by requiring uniformity between “coordinate state and federal
courts sitting side by side.” Klaxon v. Stentor Co., 313 U.S. 487,
196 (1941). This may suggest that the extent of our obligation to
defer to the Eighth Circuit would depend on what weight the Dis-
trict of Columbia Court of Appeals would give to that court’s rul-
ing in the absence of governing Missouri precedent. See 19 C.
WRIGHT, A. MILLER & E. COOPER, FEDERAL PRACTICE AND PROCEDURE
§ 4507, at 112 (1982). But the local courts in the District of
Columbia have not spoken to this issue; accordingly there is no
indication that they would treat the matter of deference any dif-
ferently than the rule set forth in our decision in Aber.

rm i ee

9a

Ins. Co., 8363 F.2d 684, 689 (D.C. Cir. 1966). Deference
is one thing; blind adherence quite another. Under Abez,
we will not follow another circuit’s decision if that court
“ignored clear signals emanating from the state courts”
or “clearly misread state law.” 790 F.2d at 125-26 (em-
phasis in original), citing with approval Factors, Etc.,
Inc. v. Pro Arts, Inc., 652 F.2d 278 (2d Cir. 1981), cert.
denied, 456 U.S. 927 (1982). While the instances when
this has occurred will be “rare” (790 F.2d at 125), we
believe the Eighth Circuit’s decision in NEPACCO falls
within the Abex exception.

NEPACCO begins with an analysis of Missouri’s prin-
ciples of insurance contract interpretation. The court
determined that under Missouri law the language of an
insurance policy is to be given “the meaning that would
ordinarily be understood by the lay|[person] who bought
and paid for the policy.” NEPACCO, 842 F.2d at 985,
quoting Robin v. Blue Cross Hosp. Serv., Inc., 687 S.W.2d
695, 698 (Mo. 1982). On this score, the court was clearly
correct. “Meaning of words or terms in an insurance con-
tract is tested by common understanding and speech of
men.” Whited v. National Western Life Ins. Co., 526
S.W.2d 364, 367 (Mo. App. 1975); see also Greer v.
Zurich Ins. Co., 441 S.W.2d 15, 27 (Mo. 1969) ; Wehmeier
v. State Farm Mut. Auto. Ins. Co., 556 S.W.2d 739, 740
(Mo. App. 1977). The court also ruled that under Mis-
sourl law if the language is unambiguous, the insurance
policy is to be enforced strictly in accordance with its
plain and ordinary meaning; if it is ambiguous—that is,
“reasonably open to different constructions’—then it
should be construed against the insurer. 842 F.2d at 985.
Here too the Eighth Circuit was on solid ground. When
language is susceptible to more than one plain and or-
dinary interpretation, “that most favorable to the insured
must be adopted.” Krombach v. Mayflower Ins. Co., 785
S.W.2d 728, 731 (Mo. App. 1990). A technical meaning
that is in conflict with common understanding shall not
be applied “unless it plainly appears that the technical

10a

meaning is intended.” Krombach, 785 S.W.2d at 731;
see also Greer, 441 S.W.2d at 27.

Our difficulty with NEPACCO is that it fails to apply
these Missouri law principles. Rather than relying on the
common understanding of the word “damages,” the court
proceeded to analyze how that term is used “by astute
insurance specialists or perspicacious counsel” (Hammon-
tree v. Central Mut. Ins. Co., 385 S.W.2d 661, 666 (Mo.
App. 1965)). Relying on Maryland Casualty Co. v.
Armco, 822 F.2d 1348 (4th Cir. 1987), which interpreted
“damages” based on “the legal, technical meaning” (id.
at 1352), the court concluded that “damages” unambigu-
uously refers to compensatory relief but does not include
equitable monetary relief. NEPACCO, 842 F.2d at 985-
86. Law-suits by the government seeking reimbursement
or restitution for environmental cleanup costs “are essen-
tially equitable actions for monetary relief” (id. at 987).
Therefore, the court found such costs to be outside the
realm of insurance policies indemnifying for “sums” to be
paid “as damages.”

As the NEPACCO majority itself acknowledged, the
lay insured would not distinguish between legal and
equitable relief when construing “damages.” 842 F.2d at
985. The term broadly refers to “the estimated reparation
in money for detriment or injury sustained,” or “compen-
sation or satisfaction imposed by law for wrong or in-
jury.” WEBSTER’S THIRD NEW INTERNATIONAL DICTION-
ARY 571 (1981). The Missouri layperson would expect
“damages” to encompass all financial liabilities one is obli-
gated to pay as a result of another’s loss. At least one
Missouri trial court has interpreted “damages” this way
in a case involving the same insurance policy language at
issue here. Cooper Indus., Inc. v. American Mutual Lia-
bility Ins. Co., No. 864-00284, mem. op. at 33 (Mo. Cir.
Ct. Sept. 8, 1989). Before Missouri adopted model jury
instructions, in decisions concerning the adequacy of triai
courts’ jury instructions on the issue of damages in negli-
gence actions, Missouri courts defined “damages” as re-

lla

compense or reparation for injury sustained. See Jackson
v. St. Louis-San Francisco R. Co., 211 S.W.2d 931. 936
(Mo. 1948); Lord v. Austin, 39 S.W.2d 575, 578 (Mo.
App. 1931). Under Missouri’s model instructions, recov-
ery reflecting the cost of restoring or repairing property
is also understood as a form of “damages.” Cf. Jack L.
Baker Cos. v. Pasley Mfg. & Distrib. Co., 413 S.W.2d 268,
272-73 (Mo. 1967). As the Missouri trial court observed
in Cooper Industries, these jury instruction cases are sig-
nificant because Missouri courts “were confronted with
the meaning of the term damages as it would be under-
stood by laymen—the jury.” Cooper Industries, mem. op.
at 34-35.

Liability for environmental cleanup costs quite nat-
urally fits this common and ordinary understanding of
damages. Missouri and the United States “are not mee
contractors who act out of expectation of recompense for
their cleanup work.” AJU Ins. Co. v. Superior Court, 51
Cal. 3d 807, 829, 274 Cal. Rptr. 820, 836, 799 P.2d 1253,
1269 (1990). Their out-of-pocket expense in cleaning up
the property contaminated by dioxin is a loss or detriment
“incurred as a matter of public duty” and constitutes
harm to the public fise. Jd. Independent Petrochemical’s
liability compensates for that harm.

Our research reveals that, with the exception of
NEPACCO, in every case in which the operative state’s
rules of insurance contract interpretation required—as
Missouri’s does—resort to the common and ordinary un-
derstanding of language, the word “damages” has been
construed to cover reimbursement for environmental re-
sponse costs incurred by a government.’ These decisions

7 See, e.g., New Castle County v. Hartford Accident & Indem.
Co., 933 F.2d 1162 (3d Cir. 1991); Avondale Industr., Inc. v. Trav-
elers Indem. Co., 887 F.2d 1200, 1207 (2d Cir. 1989), cert. denied,
110 S. Ct. 2588 (1990); Jones Truck Lines v. Transport Ins. Co.,
29 Env’t Rep. Cas. (BNA) 1606, 1613 (E.D. Pa. 1989) ; Chesapeak«
Utils. Corp. v. American Home Assurance Co., 704 F. Supp. 551,

12a

are discussed in depth by Judge Becker, in his opinion for
the court in New Castle County v. Hartford Accident &
Indemnity Co., 933 F.2d 1162, 1187-90 (3d Cir. 1991).
Decisions construing the term differently were apparently
governed by state rules of interpretation under which the
technical or legal meanings of language controlled.®

Had the record revealed that Independent Petrochemi-
cal intended to be bound by the technical meaning of
“damages,” the common and ordinary understanding of
that term wou!d not control. Krombach, 785 S.W.2d at
731. But no such evidence was presented. The insurers
here simply relied on the argument that “damages” has
an unambiguous technical meaning. While that may be
true, it misses the point. Technical meaning is the excep-
tion rather than the rule in Missouri, and the insurers
therefore also had to show that the parties intended to be
bound by it. We thus disagree with the Eighth Circuit
that the Missouri Supreme Court would not construe
“damages” to carry the meaning a layperson would give
to it.

We also reject the insurers’ argument, adopted in
NEPACCO (842 F.2d at 986), that the language of
CERCLA is against construing the word “damages” to
encompass liability for the governments’ cleanup costs. It
559-60 (D. Del. 1989); United States Fidelity & Guar. Co. v.
Thomas Solvent Co., 683 F. Supp. 1139, 1169-70 (W.D. Mich. 1988) ;
Fireman’s Fund Ins. Cos. v. Ex-Cell-O Corp., 662 F. Supp. 71, 75
(E.D. Mich. 1987); Boeing Co. v. Aetna Casualty & Surety Co.,
784 P.2d 507, 511-12 (Wash. 1990).

8 See, e.g., Cincinnati Ins. Co. v. Milliken & Co., 857 F.2d 979,
981 (4th Cir. 1989); Maryland Casualty Co. v. Armco, Inc., 822
F.2d 1348, 1352 (4th Cir. 1987), cert. denied, 484 U.S. 1008 (1988) ;
Cedar Chemical Corp. v. American Universal Ins. Co., No. 87T-
2838-4B, mem. op. at 6 (W.D. Tenn. Sept. 13, 1989); Hayes 2.
Maryland Casualty Co., 688 F. Supp. 1513, 1515 (N.D. Fla. 1988) ;
Travelers Ins. Co. v. Ross Elec. of Washington, Inc., 685 F. Supp
742, 745 (W.D. Wash. 1988) ; Lido Co. of New England v. Fireman’s
Fund Ins. Co., 574 A.2d 299, 301 (Me. 1990) ; Braswell v. Faircloth,
387 S.E.2d 707, 710-11 (S.C. Ct. App. 1989).

l3a

is of no consequence that CERCLA lists separately lia-
bility for “all costs of removal or remedial action in-
curred by the United States Government or a State” (42
U.S.C. § 9607(a) (4) (A)), and liability for “damages for
injury to, destruction of, or loss of natural resources”
(id. § 9607(a) (4) (C)). Other sections treat response
costs as a subset of damages. CERCLA provides, for ex-
ample, that the measure of “damages to natural re-
sources” shall “not be limited to the sums which can be
used to replace or restore such resources.” 42 U.S.C.
§ 9607(f) (1). Moreover, courts that have interpreted
CERCLA do not seem to distingish governmental cleanup
costs from “damages.” The Supreme Court characterized
ection 107 as providing “liability in damages,” and con-
cluded that CERCLA “hold[s] States liable in damages
in federal court.” Pennsylvania v. Union Gas Co.. 491
U.S. 1, 12, 13 (1989). Other courts have also identified
CERCLA claims for relief as including cleanup costs “or
other damages.” See, e.g., Cadillac Fairview/California
v. Dow Chemical Co., 840 F.2d 691, 693 (9th Cir. 1988) :
Gopher Oil Co. v. Union Oil Co. of California, 757 F.
Supp. 988, 997 (D. Minn. 1990) ; Commerce Holding Co.
v. Buckstone, 749 F. Supp. 441, 443 (E.D.N.Y. 1990);
Ogden Corp. v. The Travelers Indem. Co., 739 F. Supp.
796, 801 (S.D.N.Y. 1989) ; Philadelphia v. Stepan Chem-
ical Co., 713 F. Supp. 1484, 1486 n.3 (E.D. Pa. 1989).
We not only have done the same, but also have stated
that restitutionary relief (cost of restoration) is a proper
measure of recovery in “resource damages actions.” See
Ohio v. U.S. Dep’t of Interior, 880 F.2d 432, 459 (D.C.
Cir. 1989).

The insurers also argue that to interpret “damages”
to include cleanup costs would make no sense when the
clause—“all sums which the insured shall become legally
obligated to pay as damages’”—is read as a whole. They
believe such a reading must be incorrect because it would
make the term “damages” all-inclusive; if cleanup costs
are “damages,” then so are “all sums” a party might
have to pay, such as fines, penalties, and attorneys’ fees.

14a

The argument, in other words, is that the reference to
“damages” would be rendered redundant because it would

not limit or qualify the term “all sums.

We can see how an ordinary person might view re-
sponse costs, but not fines or penalties, as “damages.”’
Liability for environmental response costs is similar to
compensation placing an individual in the position that he
would have been in had the injurious action not occurred.
This is how “damages” is ordinarily understood. A fine

1 y . . oa at _ —fy4+ ; . ] lle y
or penalty, in contrast, is not understood to be dollar-

s?

"ny ] - ron 5 Path > it 7 ‘ ’ rawr for f
for-dollar recompense. Rather, it is a pecuniary form of

punishment for the commission of an act society finds re-
pugnant and seeks to deter. See WEBSTER’S THIRD NEW
INTERNATIONAL DICTIONARY 852, 1668 (1981); BLACK’S
LAW DICTIONARY 632, 1133 (6th ed. 1990); see also
Gloucester Township v. Maryland Casualty Co., 668 F
Supp. 394, 401 (D.N.J. 1987). In regard to attorneys’

fees, Missouri law is inst the insurers’ position. A
Miss +} QY\Y ale wT hac bk ald that TT rneyv ? fees qj Vro
i issour!l appedis CUUT nas neia lial a Oorneys Ces alt
“indistinguishable from a damages award for [/!insur-
nce] coverage purposes” where the operative policy lan-
guage is the same as in this case. Hyatt Corp. v. Occi-
dental Fire & Casualty Co. of North Carolina, 801 S.W.

2d 382, 393 (Mo. Ct. App. 1990)

We therefore hold that under the insurance policies
]

governed by Missouri law, “damages” includes costs the
insured is legally obligated to pay to the United States

5 |

and Missouri as reimbursement for their activities in

remedying environmental harm.

I]

The remaining question on appeal is whether an insur-
ance policy issued by Pacific Indemnity Company covered
Independent Petrochemical, Charter Oil and The Charter
Company at the time Bliss sprayed the oil containing
dioxin. Pacific Indemnity maintains that the policy
expired on January 7, 1971, when Signal Oil and Gas
Company sold all of Independent Petrochemical’s out-
standing stock to Charter Oil Company, six weeks before

bilss first began removing the dioxin-eont:

10xin- aminated mate-

a0} | that the policy exnired

and therefore granted Pacific’s motion for summary judg-
] ] W I I
As pr nary matter, we must decide what law
verns our Interpretation of the Pacific policy, a ques-
non ddressed below. Pacific Indemnity maintains
rnia law governs. Pacific Indemnity is a Cali-

4

a corporation, Pacific and Signal Oil have their

! es of business in California, Signa] paid
remiun n Californi nd Pacific administered the

‘e. On the other hand, Missouri jaw might

er) cause Missouri is where the insured risk is
See RESTATI MENT (SECOND) OF CONFLICT OF
LAWS 193 (1971). We need not choose between the
er, bi se the laws of Missouri and Cali-
rally are compatible. See Muller v. Massachu-
Wui. Life Ins. Co., 644 F. Supp. 916, 918 (D.D.c.

L9S¢ Like Missouri law, California law merely re-
rn ' the Pacific policy to be construed ac-

rding to their ordin: ry meaning. AIU Ins. Co. v. Su-
or Court, 51 Cal. 3d 807, 274 Cal. Rptr. 820, 799.
P.2d 1253 (1990); Mill Valley v. Transamerica Ins. Co.
YS Cal. App. 3d 595, 602, 159 Cal. Rptr. 635, 639 (Ct.
App. Ist Dist. 1979); Highlands Ins. Co. v. Universal
Underwriters Ins. Co., 92 Cal. App. 3d 171, 174-75, 154
Cal. Rptr. 683, 685 (Ct. App. 2d Dist. 1979).

in relevant part, Item 1(A) of the nolicy defines

"y and associate com-
les of “The Signal Companies’ . . . or other com-
pany but only as listed in Item 6 of the Declarations
” Item 6 is a listing of companies entitled “Schedule
{ Subsidiaries /Associates Insured.” When read together,

m 1A nd Item 6 express the parties’ intention to
nsure com) es that are in some way affiliated with

speaks of “subsidiary and associate
companies,” and refers to what is an “at-a-glance” ref-

erence list for identifying who those subsidiaries and

l6a

associates might be. At the time of the stock transfer
from Signal to Charter Oil, Independent Petrochemical
lost its status as a subsidiary and therefore no longer
fell within the ambit of the Pacific policy.

It is equally clear that continued coverage was not
intended to be an automatic consequence of the stock
transfer transaction. In Article XXI(a) of their Agree-
ment and Plan of Reorganization, Signal agreed to main-
tain Independent Petrochemical’s coverage “pending the
Closing Date.” Article XXI(b) provides that “[a]t
Charter Oil’s request” and “for a reimbursement by
Charter Oil of a pro-rata share of premiums paid by
Signal,” Signal would “use its best efforts to continue
coverage ... after the Closing Date and until expira-
tion of the policy year... to the extent permitted by
the particular Signal insurance policy.” Charter took
none of these steps. Instead, it obtained other insur-
ance coverage for Independent Petrochemical effective
October 3, 1970, months before the closing date.

* * * ¥

We affirm the district court’s order of February 4,
1986, and its judgment, in favor of Pacific Indemnity
“on all claims made by Plaintiffs in this section.” For
the reasons set forth in part I, we reverse the district
court’s judgment that the policies governed by Mis-
souri law do not cover environmental cleanup costs, in-
curred by the state and federal governments, for which
the insured is legally obligated.

17a
APPENDIX B

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA

Civil Action No. 83-3347

INDEPENDENT PETROCHEMICAL CORPORATION, et al.
Pla int ffs,

AETNA CASUALTY AND SURETY CoMPANY, et al.
Defe ndan ts.

Filed Sep. 7, 1988]

Introduction

This declaratory judgment action has been brought to
determine defendant insurers’ defense and indemnifica-
tion obligations to plaintiffs Independent Petrochemical]
Corporation (IPC), Charter Oi] Company (COC) and
The Charter Company (TCC). Plaintiffs have been
named as defendants in a great number of suits brought
as a result of dioxin contamination jn Missouri.' Both
defendants and plaintiffs have filed motions for summary

' For the sake of simplicity, throughout much of this memorandum

“plaintiffs” will be used gen rically to refer to any of the plaintiff
organizations. The court note 3, however, that it was IPC that was
directly engaged in marketing petrochemicals in Mi ourl in the
1970s

18a

judgment and partial summary judgment based on
various issues involving, for example, the formation and
interpretation of policy provisions.’ The discussion below
addresses the various defendants’ and plaintiffs’ motions
together on an issue-by-issue basis. A listing of these
issues follows:

(1) Waiver of Defenses p. [19a]

(2) Nondisclosure p. [66a]
(3) Timely Notice p. [78a]

(4) Named Inured p.

—
-
_

—"
one
_—
~

(5) Limits of Liability p. | 109:
(6) Number of Policy Periods p. |117a|

(7) Policies Claimed To Have Expired

3efore Contamination at Specific Sites p. |123a]

(8) Property Damage Claims From
Contamination Before Policies Started _ p. [139a]

(9) Completed Operations p. [146a]
(10) Pollution Exclusion Clause p. [155a]
(11) Punitive Damag p. [175a]
(12) Cleanup Costs p. [196a]

2 Certain defendants have requested that final judgment be entered
pursuant to Rule 54(b) of the federal rules of civil procedure with
regard to the issues decided here. Because of the federal policy
against pliece-meal appeals, the greater efficiency of having all of
the issues in this case considered on appeal together, and the lack of
prejudice or injustice to the defendants from this delay, the court
will not grant rule 54(b) certification with regard to ar if
issues decided here. See Cullen v. Margiotta, 618 F.2d 226, 228
2nd Cir. 1980) (rule 54(b) certification appropriate only where
delay would create danger of hardship or injustice); McSurley v
McClellan, 697 F.2d 309, 315 (D.C. Cir. 1982) (denial of motion for

summary judgment ordinarily not reviewable).

19a

l. WAIVER OF DEFENSES

Plaintiffs move for partial summary judgment declar-
ing that the following defendants have walved the affirm-
ative defenses listed below by failing to assert them within

a reasonable time after being notified of the claims under-
lying this suit:

Insurance Company of North Ame rica (INA)

—Failure to Disclose (Fifth Defense )
—Failure to Mitigate (Eleventh Defense )
Ae tna Casualty & Sure ty Company

~——Pollution Exelusion (Third Defense )

i

Hartford Accid nt & Inde mnity Company

—Pollution Exclusion (S venth Defense)
-Conduct in Disregard of Laws (FF
Defense )

Unigard Mutual Insurance ¢ ompany

—Misrepresentation of Material Facts (Ty
Defense )

American Home Assurance Company
Lexington Insurance Company
Insurance Company of the State of Pe nnsylvania
(ISOP)
—Nondisclosure with respect to 1975 policies
(Eleventh Defense)

—Pollution Exclusion (September 2. 1986

Letter)

Harbor Insurance ( ‘compan if

Pollution Exclusion (Ninth Defense)

Ad

U. S. } ire Insurance ( ‘Om pany

—Fraud (Third Defense)

20a

—Misrepresentation of Material Facts (Fourth
Defense).

Plaintiffs allege that defendants were obligated to in-
form them of any defenses that would prevent coverage
as soon as defendants possessed enough information to de-
termine that the defense applied. No later than July 19,
1983, according to plaintiffs, suf ficient information to put
defendants on notice of each of these defenses was pro-
vided to each of the above listed defendants.

Defendants, however, did not notify plaintiffs of any of
the above listed defenses before July of 1985. As a result,
plaintiffs argue, defendants implicitly waived these de-
fenses and should be barred from asserting them in this
litigation. Defendants deny that they have waived these
defenses. Primary insurers INA, Aetna and Hartford ar-
gue that a waiver must be intentional and cannot result
from mere delay in notifying plaintiffs of these defenses.
Estoppel is also unjustified according to these defendants
because plaintiffs have not made a sufficient showing of
reliance or prejudice from this delay. Excess insurers
Unigard, American Home, Lexington, ISOP, Harbor, and
U.S. Fire contend that they have no duty to notify plain-
tiffs of their position on coverage until the underlying
primary coverage has been exhausted or they are required
to provide a defense. Finally, many defendants claim that
contrary to plaintiffs’ assertions, they did not possess suffi-
cient information to establish the applicability of these
defenses following the July 1983 meeting, and so did not
raise these defenses until 1985 and 1986, in their answers
to plaintiffs’ complaint and in answers to interrogatories

Under rule 56(c) of the federal rules of civil procedure,
summary judgment “shall be rendered forthwith if the
pleadings, depositions, answers to interrogatories, and ad-
missions on file, together with the affidavits, if any, show
that there is no genuine issue as to any material fact and
that the moving party is entitled to a ju
ter of law.” Fed. R. Civ. P. 56(«

opment aS a mat-

7 A mee ree ee ee ee ee
os

2la

In evaluating the factual basis of defendants’ motions,
the court must determine “whether the evidence presents
a sufficient disagreement to require submission to a jury
or whether it is so one-sided that one party must prevail
as a matter of law.” Anderson ». Liberty Lobby Inc., 477
U.S. 242, 251-52, 106 S.Ct. 2505, 2512 (1986).

I. Factual Background

In 1971 IPC arranged for Russell Bliss. an independent
contractor, to dispose of certain waste products for its
customer Northeastern Pharmaceutical and Chemical
Company (NEPACCO). It is alleged that these waste
products contained dioxin, a highly toxic substance. Bliss
allegedly mixed the dioxin with other waste oils and
sprayed it as a dust suppressant on nonpaved roads and
horse arenas in various communities in Missouri, As the
toxie effects of the dioxin became apparent, claims were
brought against Bliss. NEPACCO, IPC and IPC’s corpo-
rate parents COC and TCC.

Plaintiffs IPC, COC, and TCC subsequently notified
their primary insurers, and in some cases their excess in-
surers, of these claims. While the insurers’ responses
varied to some extent, all defendants except Aetna either
denied coverage, reserved their right to do so. or other-
wise failed to provide plaintiffs with a defense. Plain-
tiffs consequently secured their own defense counsel, main-
taining contact with their primary insurers about cover-

age,

On June 28, 1983, plaintiffs wrote to all primary and
excess insurers inviting them to a meeting on July 19,
1983, at which plaintiffs would “present information re-
garding the allegations in the dioxin] Actions and dis-

' Aetna initially agreed to d fend plaintiffs, while res rving its
rights to disclaim coverag: later, against the Drinkard claim. This

claim was later settled by other insurers on behalf of plaintiffs.

22a

cuss proposed case management and defense plans.” * All
defendant insurers attended except for excess insurer
American Home.

At the July 19, 1983 meeting, plaintiffs’ presentation
included background information on the events from
which the underlying dioxin claims arose, and a descrip-
tion of claims filed and anticipated claims. This back-
ground included: information about plaintiffs and other
entities involved, including Bliss and his activities; the
names and locations of identified and potential sites; a
description of dioxin and its alleged effects on human
health and the environment; and a status report on claims
filed as of that date. Information on the history of the
dioxin claims included the history of IPC; IPC’s relation-
ship to NEPACCO; IPC’s relationship with Bliss; and
state and federal involvement in the 1970s.

Plaintiffs also proposed a “Standstill Agreemen nt” by
which the primary carriers would participate with the
plaintiffs in a cooperative arrangement for defending the
claims, while reserving their rights to disclaim liability
at a later date. han egg produced no agreement, how-
ever, and on November 9, 1983 plaintiffs brought this ac-
tion. On November 11th, plaintiffs wrote to the excess

insurers:

This action has been filed reluctantly because of our
inability to reach a mutually acceptable standstill
agreement relating to these cases. Our clients are
anxious to resolve these questions and will not ac-
tively prosecute this case pending an early meeting
to reach such agreement. We would like to continue
the spirit of cooperation evidenced at our meeting on
July 19, 1983

)
]
I

4 Attachment A to Plaintiffs’ Statement of Points and Authoritie 3
in Support of Their Waiver Motion, Exhibit 1 (‘“Plaintiffs’ Waiver
Motion’”’)

pi

C

23a

We have agreed with the primary

insurers to meet
in Washington D.C.. on Thursday, November 17,

1983, to reach an agreement. The meeting will be
held at The Charter Company’s office at 2550 M
Street, N.W., Suite 780, Washington, D.C. We be-
lieve it more productive to meet fir
primary carriers and such excess insurer representa-
tives as the primary insurers believe are appropriate.
A second meeting will then be scheduled with all par-
ticipating, if desired.

st with the six

No excess insurer defendant was asked to attend the
November 17th meeting, nor was a second meeting to in-
volve the excess insurers held. Court proceedings were
Stayed, at the request of the parties, for most of the
period up to June 13, 1985.

During this period, a “Standstill
Agreement” was negotiated and finally
tiffs and the primary insurers,
A reservation of righ

Interim Defense
signed by plain-
effective February 1984
its provision was included:

2. Reservation of Rights—This Interim A
does not adopt any specific coverage theory. All
parties to this Interim Agreement fully reserve al]
rights and obligations with regard to all
defense and indemnity, whether or
party specifically reserves its rights ¢
relation to each or any of the individual claims or
legal actions that form the basis for this Interim
Agreement. All parties accept all other
ervations of rights: and. except

greement

issues of
not any such
oncerning or in

parties’ res-
as otherwise spe-
cifically provided herein. no Waiver or estoppel shall
arise as a result of this Interim Agreement. or any
delay in its having been undertaken, nor shall any
exclusion or other limitation he considered waived.

5 Partial Joint Opposition Of Aetna C

iny, Hartford Accident And
ompany Of North Americ

asualty And Surety Com
Indemnity Company
. t

And Insurance
a To Plaintiffs’ Motj n For

Su mmary

24a

Both plaintiffs and defendants have since filed numer-
ous pleadings, and engaged in discovery, concerning the
defenses at issue here. This material will be discussed
below, in relation to each specific defendant and defense
involved.

II. Choice of Law Principles

In determining what law to apply to issues in contract,
the court should generally apply the law chosen by the
parties unless it is contrary to a fundamental policy of a
state with a materially greater interest. See Restatement
(Second) of Conflict of Laws § 187 (1971). Absent a
determination by the parties, the court will apply “the
local law of the state which, wtih respect to that issue, has
the most significant relationship to the transaction and
the parties”. Jd. § 188. The contacts to be considered in
determining which state has the most significant rela-
tionship include:

“(a) the place of contracting,
(b) the place of negotiation of the contract,
(ec) the place of performance,

(d) the location of the subject matter of the contract,
and

(e) the domicil, residence, nationality, place of incor-
poration and place of business of the parties.

These contacts are to be evaluated according to their
relative importance with respect to the particular
issue.”

Id. § 188(2); See Koro Co, Ine. v. Bristol-Meyers Co.,
568 F.Supp. 280, 286 (D.D.C. 1983) (citing Restate-
ment).

Judgment Against Certain Defendants With Respect To The Waiver

of De fenses, Attachment at 4-5 “Partial Joint Opposition to
i
Plaintiffs’ Waiver Motion )

25a

Where the contract is one for liability insurance, “the
State which the parties understood was to be the principal
location of the insured risk during the term of the policy”
will control the rights created under the policy “unless
with respect to the particular issue, some other state has
a more significant relationship.” Jd. § 193.

This court has made a number of rul
law to be applied in this case. In general, the law to be
applied to a waiver claim wil] be the same law that gov-
erns the affirmative defense at issue. See Memorandum of

January 8, 1987 at 1] (Waiver issue entwined with de-
fense of nondisclosure).

ings regarding the

Because all of the activities giving rise to the underly-
ing dioxin-related claims took place in Missouri, where
IPC was operating during the relevant time period 1971-
1983, and which is the location of the insured risk in-
volved here, in general the court will evaluate
that are rooted in the inter
cording to Missouri law.

defenses
pretation of the policies ac-
See Independent Petrochemical
Corp. v Aetna Casualty & Surety Co., 654 F.Supp. 1334,
1356-57 (D_D.C. 1986) (trigger-of-coverage issue strongly
connected with the location of the insured risk that
knew existed when contracts formed:
erns) (“IPC v. Aetna’).

parties
Missouri law gov-

Defenses involving challenges to the formation of the

contract ordinarily will be evaluated according to the law
of the state in which they were negotiated and formed.
See Memorandum of January 8, 1987 at 4
Which negotiation and formation of
Florida has most substantial
govern nondisclosure defense).

(as state in
contract occurred.
interest in having its law

Defenses relating to either the formation or the inter-
pretation of the policies that designate New York law
will be evaluated under New York law. New York
will control the appl

law
ication of these policies unless there
is a fundamental] conflict between New York
that of Missouri. Se. IPC v.

law and
Aetna, 654 F.Supp. at 1357

26a

(choice-of-law provisions will be given effect unless in
fundamental conflict with Missouri law). For each of the
defenses plaintiffs allege have been waived, the court
will review the law of the relevant jurisdiction with re-
gard to notice and waiver of defenses. Formation de-
fenses will be considered first, followed by defenses based
on interpretation of the policy.

Ill. Formation Issues

Plaintiffs assert that if a choice of law analysis is
necessary, that Florida law should govern those defenses
involving the formation of the policies and the waiver of
those defenses. These defenses would include: (A) pri-
mary insurer INA’s failure-to-disclose defense,® (B) ex-
cess insurer Unigard’s misrepresentation of material
facts defense; (C) excess insurers American Home, Lex-
ington & ISOP’s nondisclosure with respect to 1975 poli-
cies defenses; and (1D) U.S. Fire’s fraud and misrepre-
sentation of material facts defenses.

American Home, Lexington & ISOP “contend that the
Court need not engage in a choice of law analysis with
respect to the waiver issue since there is no conflict be-
tween Missouri and Florida law on the facets of that is-
sue which are dispositive here.’”’ Instead, defendants sug-
gest that the court should decide this case according to
‘uniform state law.”

® This court has already ruled that Florida law controls INA’s
defense of nondisclosure and its waiver. Memorandum of January
8 1987, at 3-5 (‘“‘Florida, the state in which negotiation and forma-
tion occurred, has the most substantial interest in seeing its laws
applied to the conduct of parties negotiating for insurance in its
jurisdiction.”) and at 11 (“Because the question of waiver is so
entwined with the issue of nondisclosure, and because Florida has
such a strong interest in that issue, see supra, § II A, [discussing
choice of law for nondisclosure issue] Florida law must apply to the
question of waiver as well.”).

27a

The court disagrees. There are important differences
between the laws of Missouri and Florida that make it
impossible for the court to decide these issues under any
concept of “uniform state law.” Florida has statutory
law relevant to these issues that has no comparable coun-
terpart in Missouri law—specifically, Fla. Stat. § 627.409
(1981), which plaintiffs argue bars defendants

from as-
Serting this defense.

The court has already ruled that “the
disclosure in negotiating and forming a contract is appro-
priately resolved according to the law of the state in
which negotiations took place and the contract was
formed.” Memorandum of January 8, 1987 at 4. The
court found that INA’s policies were
formed in Florida and that Florida law would govern its
defense of nondisclosure. /d. Defendants American
Home, Lexington, ISOP, Unigard and U.S. Fire have not
contested plaintiffs’ assertion that their policies were
formed in Florida. Although many of the contacts leading

up to the policies’ formation were between brokers, the
instructions for coverage and final approval came from

Jacksonville, Florida, headquarters of COC and TCC.

issue of non-

negotiated and

The court concludes that Florida h

as the most sub-
stantial interest in havin

g its law applied to the “forma-
tion” issue of nondisclosure under the policies of American
Home, Lexington, ISOP, Unigard and U.S. Fire. U.S.
Fire’s policies incorporate language from underlying
policies which specifically state, however, that they “shall
be construed and in force in accordance with and gOV-
erned by the internal law of the State of New York.” 7

* See, e.g., Plaintiffs’ Appendix Of }
In Plaintiffs’ Statement Of Points And Authorities In Opposition
To Defendants’ Seven Motions For Partial] Summary Judgment
On The Punitive-Damages Issue, And Plaintiffs’ Rule

ment In Support Thereof. Tab & (CIRCL
821)

-olicy Provisions Relied Upon

108(h) Stat

policy number CHAF
(“Plaintiffs’ Appendix of Policy Provisions on P

unitive Dam-
ages Issue’’).

28a

The application of New York law to U.S. Fire’s nondis-
closure defense and waiver issues will be discussed follow-
ing an analysis of the issues that are to be decided by
Florida law: the defense of nondisclosure and its waiver
under the policies of INA, American Home, Lexington,
ISOP and Unigard.

A. INA’s De f nse of Nondisclosure

As defendants argue that the obligations of a carrier
under an excess insurance policy are different from its

obligations as a primary insurer, the court will first dis-
iss INA’s position as a primary insurer of plaintiffs and
as a carrier of plaintiffs’ excess insurance. INA is

of policies at issue here.

Under Florida common law, if an insurer intends to
ssert a defense to its bility on a policy, the insurer
should inform the insured of that defense as soon as
practicable after the basis of the defense is known.
Tiedtke v. Fidelity & Casualty Co. of New York, 222
So.2d 206. 209 (Fla. 1969): Bergh v. Canadian Universal
Insurance Co., 216 So.2d 436, 441 (Fla. 1968). More-
over, a Florida statute requires that an insurer comply
with specific notice requirements in responding to an in-
sured’s claim, or risk losing the ht to assert that
defense.

Fla. Stat. § 627.426(2) states that:

(2) A liability insurer shall not be permitted to
deny coverage based on a particular coverage defense
unless:

(a) Within 30 days after the liability insurer
knew or should have known of the coverage defense,
written notice of reservation of rights to assert a
coverage defense is given to the named insured by

——— ad nda

29a

registered or certified mail sent to the last known
address of the insured or by hand delivery; and

(b) Within 60 days of compliance with paragraph

a) or receipt of a summons and complaint naming
the insured as a defendant. whichever is later,

but in
no case later than 30 days before trial, insurer:

1. Gives written notice to the named insured by

registered or certified mail of its refusal to defend
the insured:
2. Obtair

f sured a nonwaiver agree-
ment following fu ire of the specific facts and
policy provis the coverage defense is
asserted and th: YS gations, and liabilities of

the insurer ng the pendency of the
subject litig

-

3. Retains independent insel which is mutually
agreeable to the parties. . .

See A uto Own rs Insuranc: Co. Vv, Salvia, 472 So.2d 486,
488 (Fla. Dist. Ct. App. 1985) (holding insured’s lack of
cooperation would not excuse insurer from strict com-
pliance with one of three available

$ 627.426 (2) (b).

options under

Plaintiffs have moved for summary judgment declaring
that INA has waived its defense of nondisclosure by not

compiying with these requirements of Florida law. In its
July 23, 1985 Answer, INA asserts that in applying for
insurance policies for the period 1980-1982, plaintiffs

failed to disclose information about the first series of
dioxin-related claims that had been filed against them.
Plaintiffs assert that information about these claims was
provided on July 19, 1983 at a major presentation made
by plaintiffs to all defendants except one.* At this meet-

» American Home, although invited to attend the |

resentation,
chose not to send a representative,

a

30a

ing, plaintiffs notified defendants of all claims that had
been filed to date, including the claims on which INA now
bases its nondisclosure defense. Two years later, when
answering the complaint in this case, INA advised plain-
tiffs of its intention to assert this defense.

The court previously addressed the issue of INA’s
waiver of its nondisclosure defense in its January 8,
1987 Memorandum. Plaintiffs had argued that INA
waived its nondisclosure defense by not asserting it
shortly after receiving a December 16, 1982 letter from
plaintiffs notifying it of Bliss’ activities and the exist-
ence of lawsuits filed by individuals and horse stables
against IPC and Bliss. The court found that the
“sketchy one-paragraph summary of a pre-1980 dioxin-
related litigation contained in the December, 1982, letter’’
was insufficient to show as a matter of law that INA
had the requisite knowledge to trigger the notice require-
ments of the Florida statute. Memorandum of January
8, 1987 at 12-13. |

Unlike the December 16, 1982 letter, however, which
the court noted “gives no dates or specific underlying
facts about those lawsuits,” the July 19, 1983 meeting
contained presentations specifically intended to describe
the history and status of the first series of claims, whose
earlier nondisclosure is the basis of INA’s statutory non-
disclosure defense.

Florida statute § 627.409(1) states that an insured’s
failure to disclose information material to insurer’s deci-
sion to insure, in response to a request for that informa-
tion, bars recovery on the policy. See Memorandum of
Jan. 8, 1987 at 6. Continental Assurance Co. v. Carroll.
185 So.2d 406, 409 (Fla. 1986). Where the undisclosed
information was never requested, however, the statute
does not apply. Roe ss UV. ot: Paul Fire and Ma) ine Insur-
ance Co., 383 F.Supp. 1231, 1236 (M.D. Fla. 1974).

3la

Absent an insurer’s request, the common law defense
of intentional materia] nondisclosure, or fraud, is avail-
able. See id. at 1237 (“where no inquiry is made about
matters alleged to have been concealed, the insurer may
avoid the policy only by proving that the concealment
was in fact material and. further, that the withholding
of such information was intentional and fraudulent”).

[INA claims that plaintiffs failed to disclose informa-
tion on the dioxin-related claims filed in the five years
before plaintiff entered into negotiations for coverage
from INA. These claims have come to be known as the
“first series of claims.”

Plaintiffs assert that “the history and status of the
first series of claims” was presented as part of a “de-
tailed explanation of the history of the Missouri dioxin
claims,” as well as a part of a separate “detailed de-
scription of the first series of cases.” Plaintiffs add that
INA was informed of the dates on which these claims
were filed by an attachment to the June 28, 1983 letter
that invited INA to the July 19, 1988 meeting.”

INA does not deny that this information on the first

claims was presented at the July 29, 1983 meet-
ing. Instead, INA argues that its nondisclosure defense

C

series 0]

Is based on a fact that it learned in discovery: that while

Pree.

Pralnuuts were applying for insurance during 1980-82,
tney were also pursuing indemnification from various

Insurers for one or more of the claims within this first
series filed during the 1975-79 period. This fact, INA
contends, refutes plaintiffs’ explanation that the first
aims had not been disclosed to INA because

they had been assigned to policy years prior to 1975-79.

series of «

INA did not need this information, however, to estab-
lish a prima facie nondisclosure defense under the Flor-
Ida tatute hecause no showing of fraud or the intent

ae) CON 9] 1S reg ired. See & rroll. 185 S0.2d at 109.

32a

INA’s common law defense of intentional nondisclosure
or fraud requires this additional element of intent. Plain-
tiffs have not suggested that they revealed any informa-
tion at the July 19th meeting that would have put INA
on notice of the applicability of this common law de-
fense. The court concludes, therefore, (1) that the
July 19, i983 meeting provided INA with sufficient basis
to assert a statutory nondisclosure defense but (2) that
plaintiffs have not shown that they are entitled to a
judgment barring INA from asserting its common-law
intentional nondisclosure or fraud defense.

INA, along with other defendants, argue that the in-
formation presented by plaintiffs at the July 19, 1983
meeting cannot form the basis of a waiver of rights by
INA or these other defendants. This conclusion, they
assert, is compelled by the public policy favoring settle-
ment embodied in federal rule of evidence 408. Rule 408
states, in part, that “Evidence of conduct or statements
made in compromise negotiations is [|] not admissible.”
Fed. R. Evid. 408.

Plaintiffs counter that Rule 408’s prohibitions are lim-
ited to situations in which settlement discussions are
used to prove liability, not where factual information
presented during such discussions negates a claim of ig-
norance or lack of notice. See Breuer Elec. Mfq. Co. v.
Toronado Systems of America, Inc., 687 F.2d 182, 185
(1982) (concluding “ ‘settlement’ evidence was properly
presented below to rebut defendants’ assertion that they
had not been aware of the issues until the suit was
filed”: Council for the National Register of Health Serv-
ice Providers in Psychology v. American Home Assur-
ance Co., 632 F.Supp. 144, 146 n.l (D.D.C. 1985) (al-
lowing evidence relating to settlement negotiations to
negate claims of bad faith on the part of the insurer) ;
NAACP Legal Defense and Education, Inc. v. United
States Dep’t of Justice, 612 F.Supp. 1143, 1146 (D.D.C.

1985) (concluding Rule 408 limits admission of settle-

33a

ment negotiation evidence only where used to prove li-
ability at trial; doesn’t form basis for broad FOIA dis-
covery privilege). The court agrees with plaintiffs.

INA, along with other primary insurer defendants,
argues further that the Interim Agreement they en-
tered into with plaintiffs contains a reservation of rights
provision that specifically precludes plaintiffs’ waiver
argument. This provision, quoted at length above,’ in-
cludes the statement “except as otherwise specifically
provided herein, no waiver cr estoppel shall arise as a
result of this Interim Agreement, or any delay in its
having been undertaken, nor shall any exclusion or other
limitation be considered waived.”

Plaintiffs argue that this language does not act retro-
actively to cure a waiver that had occurred during the
six to seven month period between the July 19, 1983
meeting and the effective date of the agreement, Febru-
ary ] 1984, They note that the Agreement is titled a
Standstill” arreement.

Defendant INA emphasizes the provision’s specific
statement that no waiver or estoppel should result from
any delay in reaching this agreement. INA contrasts
this language in the agreed-to version with an earlier
proposal by plaintiffs that was not accepted, which would
have reserved “the rights and obligations of the parties

the date of this Agreement.” ! The clear implica-
— under INA’s reading, is that in this agreement
plaintiffs agreed to forego their right to the claims of
waiver wl estoppel ;

»t
44

issue here.

The Court concludes that this reservation of rights provi-

sion does not prevent Florida statute § 627.426(2) from
barring INA’s stat utory nondisclosure defense where IN A’s
failure to satisfy the statute’s requirements did not result

from the time delay in reaching the Interim Agreement.

" See supra part I (“Factual Background”

‘t Attachment A to Plaintiffs’ Waiver Motion. Exhibit

anne”

34a

The Florida statute § 627.426(2) (b) may be satisfied, as
one of three options, where the insurer “[o]btain[s] [|]
from the insured a nonwaiver agreement following full
disclosure of the specific facts and policy provisions upon
which the coverage defense is asserted... .” Fla. Stat.
§ 627.426(2) (b) (2). Under the circumstances of this
case, this procedure, like any of the three options, must
be carried out no later than 90 days from the time the
insurer knew or should have known of the coverage
defense.

The Interim Defense Agreement became effective Feb-
ruary, 1984, approximately six months after INA was
provided the information necessary for it to determine
the existence of a statutory nondisclosure defense. That
nonwaiver agreement, however, was not preceded by
INA’s full disclosure of the facts and policy provisions
upon which it intended to base its nondisclosure defense.
That defense itself was not disclosed until July, 1985.
Because of its failure to fully inform plaintiffs of its
defenses before obtaining the reservation of rights
nonwaiver agreement, INA has not satisfied this statu-
tory requirement.

Nor has INA complied with the terms of the other
two options available under § 627.426(2). One of these

options allows an insurer to retain “independent coun-

. ~e . 1? . ‘ > ‘ » . ‘9 s)
sel which is mutually agreeable to the parties.” Fla.
‘4 ror o ‘ ] jé rT rt > - ;
Sta 627.426(2) (b) (3). The Interim Agreemen
] } ~ 4 4+] ‘ : . . . .
clearly indicates that defense counsel is not independent.

Under the agreement, defense counsel is appointed by and
ad e . .

171] ith « ‘ ‘ ) . ,¥Y)) ] . ;
cOnSUITS W1tN a Management Committee made up of rep-
. ‘ . la} ++ ,OlY mNCIIWAY ] 1;
resentatives of plaintiffs and their insurers, including

INA. Management Committee decisions, moreover. aré

generally decided by majority vote, with ties being de-

-
mm
ot
at
Ss
—.

J
f

cided in fIavor or the

representatives,

35a

A final option allows the insurer to give written notice
of its refusal to defend. Fla. Stat. § 627.426(b) (2) (1).
INA did refuse to defend plaintiffs by letter of April 29,
1983." This notice, however, did not assert the nondis-
closure defense as a basis for denying coverage. As a
prerequisite to properly denying coverage under the stat-
ute, the insurer must first provide written notice of a
reservation of rights to assert that defense. The need
for specificity is fairly discernible from the Statute’s
language regarding subdivision (a) :

(2) A liability insurer shall not be permitted to
deny coverage based on a particular coverage defense

unless:

(a) Within 30 days . .. written notice of
reservation of rights to assert a coverage de-

fense is given

Florida Stat. § 627.426(2) (emphasis —: Subse-
quent to its denial of coverage, moreover, INA effective ly
revoked that denial and assumed a role in the re fense by
entering into the Interim Agreement. Only much later,
in July of 1985, did INA provide written notice of its
intent to assert a defense of nondisclosure.

This discussion makes clear, then, that “primary in-
surer INA has failed to satisfy the statute’s require-
ments under any-of the three options. This failure is not
due to any delay in undertaking the Interim Agreement
but results from the lack of specific notice of the non-
disclosure defense in that agreement or any other INA
communications with plaintiffs prior to July 23, 1985.
The statutory prohibition that a liability insurer shall

>] |

rance Lon ny ot Nort} An I

‘

44a

gating dioxin contamination resulting from Bliss’ activi-
ties."* This information then, clearly was adequate to
have allowed Unigard to assert a statutory nondisclosure

defense under Florida law in 1983.

Kven if defendants had sufficient information to have
notified plaintiffs earlier, this court has held that exce
insurers’ obligations under the Florida statute are not
triggered until primary coverage has been exhausted. As
this has not yet occurred, Unigard has not breached the
statute’s requirements. Plaintiffs are not entitled, as a
matter of law, to a judgment barring excess insurer Uni-
gard from asserting its misrepresentation-of-material-fact
defense.

1). US. Fire Misr pre S¢ ntation and Fraud D f¢ nSeS

Karlier in this case, the court stated that contracted for
choice-of-law provisions would be given effect unless the
law of the state chosen was in fundamental conflict with
the law of the state that otherwise has the most substan
tial interest. See IPC v. Aetna, 654 F.Supp. at 1357
(New York law applies because not in fundamental con-
flict with. Missouri law). The U.S. Fire policies follow
the form of the CIRCL policies which state that “this
Agreement shall be construed and in force in accordance
with and governed by the internal law of the state of New
York.”

In its Memorandum of January 8, 1987, the court de-
termined that Florida has the most substantial interest in
having its law applied to INA’s defense of nondisclosure
and its waiver. The court finds that, if it were not for the
parties’ choice of New York law, Florida’s interests would
also be predominant regarding U.S. Fire’s misrepresenta-
tion and fraud defenses. For U.S. Fire’s defenses, just
as for INA’s defense of nondisclosure, “the place of con-

tracting and the place of negotiation of the contract emerge

18 Attachment G to Plaintiffs’ Waiver Motion at 12-13

——— eee

.

+ " "
perrormance,
I

as far more significant than the place 0

tter of the contract, or place 01

’
i

location of the subject m:
business of the parties.” Jd. at 4 (citations omitted
As in the case of INA’s dealing with Charter, the neg

tiations leading up to the issuing of the policie
egy :
ein were

place largely in florida and the po
plaintiffs there

T N v5 ‘ , > L, ; Soares he « \ . V 5
U.S. Fire agrees with this analysis and that New Yor

law regarding waiver, as applied to the defense rn"
representation and fraud, is not contrary to a f
mental policy of Florida law. Plaintiff uggest that
Mlorida law should control but acknowledges that Nev

York law will apply if the court finds that express choice
of law provisions govern. New York and Florida ea

have a statute that requires insurers to notlry eir
wreds promptly if they intend tg deny coverage 1}
their policies. The application of each of the e statutes to
excess insurers has been discussed earlier b he

The court determined that the obligatior of bot!
Florida and New York statutes do not apply to
carriers until the under!ying primary covet re |
exhausted and that New York law posed no confi

any fundamental! policy of Florida law.

U.S. Fire did not assert its defense id
false swearing’ and “concealment and or ! ’
tion” until July 22, 1985, when it filed At
First Amended Complaint. Plaintiff now contend
should be barred from asserting those « fense yen
knew all of the information necessary to ass

defen

et as lll CC LL LOL A
—_—— --

46a

coverage. Among other reasons, U.S. Fire contends that
its delay in asserting defenses is reasonable under the
circumstances of this case, especially because as an excess
insurer, U.S. Fire is not required to notify plaintiffs of
its coverage position until the primary coverage has been
exhausted.

The court concludes that it is not necessary to deter-
mine whether plaintiffs have shown that U.S. Fire had
sufficient information to assert its fraud and misrepre
sentation defenses in 1983. The analysis of the New York
statute’s application to excess insurers, offered earlier
with regard to INA’s obligations as an excess insurer,
clearly indicates that U.S. Fire similarly is not barred
under that statute from asserting these defenses, The
court concludes therefore that even if plaintiffs are able
to show that U.S. Fire had sufficient knowledge to notify
them of its fraud and misrepresentation defenses, plain-
tiffs are not entitled—as a matter of New York law—to a

judgment barring U.S. Fire from asserting these defenses
i 4 ;

IV. Contract Inte rpre tation Tssues

In an earlier decision in this case, the court concluded
that the contract issue of the appropriate trigger-of-
coverage under the policies is governed by Missouri law.
IPC v. Aetna, 654 F.Supp. at 1356-57. In determining
the principal location of the insured risk, the court noted

that although two of the plaintiffs were located in Florida.

éé in on 4

it is even more significant that all defendants knew tha
Florida plaintiffs [COC and TCC] were holding com-
panies of plaintiff IPC and that IPC was engaged in

terminaling and marketing various petrochemical] prod-

ucts in Missouri.” Jd. at 1357. The court found the
trigger-of-coverage issue to be “strongly connected with
the location of the insured risk,” as it “speaks to whether
defendants are liable for indemnification to plaintiffs
when injury or property damage is shown in the unde)

lying dioxin-related suits.” Jd.

a eo . 2

47a

Based on the court’s prior rulings in this case, plain-
tiffs contend that Missouri law should control issues of
waiver regarding interpretation of the insurance policies.
These include: (A) INA’s Mitigation Defense, (B)
Aetna’s Pollution Exclusion Defense, (C) Hartford’s Pol-
lution Exclusion Defense, (D) Hartford’s Conduct in Dis-
regard of Law Defense, (E) American Home, Lexington
& ISOP’s Pollution Exclusion Defense, and (F) Harbor’s
Pollution Exclusion Defense. All of these defenses center
on the issue of defendants’ liability to indemnify plaintiffs
on the underlying claims. They are all, therefore, strongly
connected to Missouri—the location of the insured risk
and the damages resulting from Bliss’ activities. Defend-

ants do not dispute plaintiffs’ reasoning. These choice of

law principles are applied to each issue below.

A. INA Mitiaati // De TCYvISE

INA has asserted as a defense that plaintiffs failed to
mitigate damages resulting from dioxin spraying in Mi
sourl. This defense addresses the activities and omissions
of plaintiffs to minimize damage in Missouri from dioxin
to the land of that state. This defense then, has a very
strong connection to Missouri as the location of the it

sured risk and is properly decided according LO Missouri

In its July 23, 1985 Answer, INA claims that even
after learning that Bliss had sprayed dioxin as a dust

Aj

suppressant on roads and horse stables in Missouri, plain-

tiffs failed to mitigate. minimize or avoid damagces from
resulti uoxin claims. Plaintiffs assert that adequate
information was provided at the July 19, 1983 meeting

concerning governmental Investigations and detection of

the dioxin, the resulting claims, and piaintiff’s defense
team, tha INA hould have known of the existence of a
b for a failure-to-mitigate defense Because it knew
of and cid not assert this defense, plaintiffs argue, INA

has waived its right to assert it as a ground for

AI TER ENA PAA CIF MH OM PN MOVIE GLTET yy POR:

. + ad “ 4

1Sa

INA argues that plaintiffs have not shown that the
July 1983 meeting revealed that plaintiffs had known, in
the 1970's, of Bliss’ spraying dioxin-contaminated waste
|! as a dust suppressant and the presence of dioxin in
this land posed severe risks to persons and property. INA
implies that this information was learned only through
discovery in this case. Although their detailed listing of
matters discussed at the July 1983 meeting suggests other-
wise, plaintiffs have not specifically asserted that in fact
they communicated the facts of their knowledge in the
1970's of the nature and danger of Bliss’ activities to INA
before this case was filed. This is equally true, of course,
with respect to both INA’s primary and excess insurance

policies.

The court finds that plaintiffs have failed to establish
that before the start of this case, INA possessed sufficient
information to enable it to assert its failure-to-mitigate
defense, either with respect to its primary or excess poli:
cies, At this point then, plaintiffs are not entitled to
judgment barring INA from asserting this defense.

RB. Ae fra pP I] hon Revel r90N De ft ¢ rSe

Aetna has asserted as a defense that the underlyine

‘ . > ? 4 } | . > °
‘dioxin-related claims are based upon allegations of the

‘discharge,’ ‘dispersal’ and ‘escape’ of ‘toxic chemicals’ and
‘waste materials or other irritants, contaminants or pol-
lutants into or upon land,’ and therefore the pollution
exclusion is prima facie applicable to those claims.”

Aetna noted further in its response to plaintiffs’ inter-

rT 2 : ] t}
rogatoryv that dliscovery is not complete as to whether

}

the discharge, dispersal or escape was ‘sudden and acci-
dental’ within the meaning of the exclusion. nor have the

a : ain — ' 1. +h} . 1e |} . mitoinan 3%
pacts necessary O resoive NS SSue een ascertained

chment F to Plaintiffs’ Waiver Motion at 34 (R
, } + ‘¢

TM A

Yr Orvrer sy

e ‘ vw wise = ~ a 2
Wesyor ¥v Trg PT hen ¥

49a

the underlying cases.” The pollution exclusion defense and
its Walver ure closely connected with Missouri. the loca-
tion of the insured risk, because that is where the “pol-
lution” is alleged to have occurred. Missouri law appro-
priately should control whether plaintiffs are to be indem-

nified from the consequences of their activity in that state.

ollution exclusion defense for the
rst time in its Answer of June 23. 1985. Plaintiffs
rgue that this defense should be barred since informa-
juate to assert this defense was known to Aetna
no later than the July 19, 1983 meeting. Plaintiffs point

o a letter dated September 14, 1978 in which they noti-

. a Fag 41 ~~ . ~ ¢ Y «
explained. ems from the alleged disposal of waste

materials containing the toxic substance dioxin bv using
tnem | { C In certain horse arenas and staples,

=y 4 } > aft " ] : a 1} nwt |
ne letter noted further that the suit alleged dioxin had

Aetna retained counsel and investigated the Drinkard

a. i ae? one ‘ ded : aa
claim. the July 19, 1983 meeting provided Aetna with
+ M + . + +} «ft . f } 1; ; ] " :
excensive Intormation on the nature of the dioxin claims
‘ . ye4 . £ Into Ky +} rm °O A et ~« mrYrr ) txr79 +}
asserted O date. urtnermore, Aetna corresponde Witn
Ins +, 47 ‘ " . } : , am : . P wes Oo” 1h ‘)*)
plaintiifs on a number of occasions from 1978 to June 23.
LJSo, reserving its rignts o} denving coverage, but solely
] . ] ‘ ] « )} . . P . : —
rround at the alleged damages did not occ)
‘uring one of its policy periods. It was not until its
7. +4 »)oO ( a L, - , + | ] sont soe
Answer on June 23, 1985 that Aetna notifie plaintiffs
? ? , ] ? 1, Y) \ ) y mY," ] y ? Yr) ] } Y)

‘4 . ‘ ‘ St'

reve | 5s 19S 1 ce letter, and tha Careru

a “ae : .

n LOTS ‘notice It the extent of the alleged dioxin
Attacl t A to Pl ffs’ W r Mot Ex) 12, at © 44

~~

50a
contamination to ‘certain horse arenas and stables.’” ”
Aetna emphasizes the continuing uncertainty about facts
essential to a determination of whether the discharge was
“sudden and accidental.”

There is no dispute, however, that by July 19, 1983
Aetna had extensive information on the manner in which
Bliss was alleged to have disposed of the dioxin. This
information included the allegations of the ‘discharge,’
‘dispersal,’ and ‘escape’ of ‘toxic chemicals’ and ‘waste
materials or other irritants, contaminants or pollutants
into or upon land,’ the grounds pointed to by Aetna in its
Response to Interrogatory 25,*° asserting that the pollu-
tion exclusion was prima facie applicable.

The court finds that Aetna knew or should have known
by this point of the existence of grounds for asserting a
pollution exclusion defense. Although new information
may have been uncovered in discovery, and factual ques-
tions remain, this information was not necessary before
plaintiffs could be notified of Aetna’s intention to assert
the defense. Aetna’s suggestion to the contrary is under-
mined by the fact that it asserted the defense in its
Answer of June 23, 1985, before substantive discovery
began. The court must now evaluate plaintiffs’ claim
that by failing to assert this defense promptly, Aetna
has waived it and is barred from asserting this ground
to avoid liability on the underlying claims.

Plaintiffs argue that under Missouri case law, when
an insurance company has denied coverage on a specific
ground, it may not later assert a different ground for
denying coverage, citing Aetna Casualty & Su ty Co. v.
Haas, 422 S.W.2d 316, 321 (Mo. 1968) (stating that
insurer may not assert a later gas exclusion basis for
denying liability after initially denying coverage for

22 See Plaintiffs’ Waiver Motion at 10 (quoting Letter from
J.H. Hill to Aetna (Sept. 14, 1978) ).

23 Attachment F to Plaintiffs’ Waiver Motion.

5la

house explosion on sole basis that property was in cus-
tody and control of insured exterminator): Stone v.
Waters, 483 S.W.2d 639, 645 (Mo. Ct. App. 1972) (hold-
ing defense that automobile not listed in policy schedule
barred because liability initially denied on other ground) ;
and State Farm Mutual Automobile Insurance Co. v. Cen-
tral Surety and Insurance Corp., 405 S.W.2d 530 (Mo.
Ct. App. 1966) (denying insurer’s su pplemental defense
that insured was not driving car on business. after in-
surer initially denied liability for anything more than
excess coverage). The pollution exclusion defense should
be barred in this case, they assert, because between 1978
and 1985 Aetna consistently denied coverage, or a
its rights, on the sole ground that the alleged dama
occurred outside of the policy periods.

Although the Missouri courts cited above made use of
the summary black letter formulation that the assertion
of one grounds for defense precludes later assertion of
different grounds, a broader view of Missouri law sug-
gests that this principle must be subject to the principle
of waiver and estoppel law. Defendants argue that the
Missouri doctrine of waiver of insurance defenses re-
quires that in the absence of an affirmative intention by
the insurance company to waive the defense, at. least
some element of estoppel must be present. See Grafe v.
Fidelity Mutual Life Insurance Co., 84 S.W.2d 400, 404
(Mo, Ct. App. 1935) (discussing waiver ne to failure to
assert defense when initially denying liabi > Doe v.
National Fire Insurance Co. of Hart arg 218 Mo. 266.
285 S.W. 961, 963-64 (Mo. 1926) discussing waiver due
to insurer instructing insured on how to make a state-
ment and too of loss); Bartleman v. Humphrey, 441

S.W.2d & 343 (Mo. 1969) (discussing waiver of for-
feiture ian unpaid pica lum, due to insurer treating
check as payment and 1 del: ng presentment of check for

payment).
Plaintiffs have not shown any direct evidence that

Aetna intended to waive its right to assert a pollution

exclusion defense. Indeed the record clearly suggests that
it did not. Although Aetna’s 1983 letters denied coverage
on the basis that the claims involved damages outside the
policy periods, each letter added that this denial was
“without waiver of any other policy conditions or de-
fenses.”” The Interim Agreement, signed by Aetna and
the plaintiffs, also included a statement that “no waiver
or estoppel shall arise as a result of this Interim Agree-
ment, or any delay in its having been entered, nor shall
any exclusion or other limitation be considered waived.”**

Nor have plaintiffs shown a sufficient “element of
estoppel” to support denying its defense. Plaintiffs assert
that the “trouble and expense” of bringing this action is
sufficient prejudice to justify barring Aetna from as-
serting its pollution exclusion defense. See State ex rel.
Shelter Mutual Ins. Co. v. Crouch, 714 S.W.2d 827, 828
(Mo. Ct. App. 1986) (‘no Missouri case has required
any more than a very slight degree of prejudice to the
claimant in this situation, it being held that the mere
trouble and expense of bringing suit is enough;” quoting
Morris v. Reed, 510 S.W.2d 234, 240 (Mo. Ct. App.
1974) ). It appears that the trouble and expense of this
suit would have been necessary in any case, however, as
Aetna denied coverage on a separate ground as well and
other defendants also have asserted pollution exclusion
defenses.

The court concludes that the “prejudice” asserted by
plaintiffs is insufficient as a matter of law to justify bar-
ring Aetna from raising its pollution exclusion defense.*®
Summary judgment would be inappropriate here even
absent this conclusion, however, based on a second ob-
jection to the application of this waiver rule here.

*4 Partial Joint Opposition to Plaintiff’s Waiver Motion, Attach-
ment at 5.

75 An analysis that supports this conclusion more thoroughly is
set out below in part IV.D (Hartford’s Conduct in Disregard of
Laws Defense).

53a

The Missouri courts have held that the doctrines of
waiver and estoppel will not apply in such situations to
“create” coverage where it is not provided under the
policy. See Lawrence v. New York Life Insurance Co.,
649 5.W.2d 461, 465 (Mo. Ct. App. 1983) (defense that
double indemnity coverage did not apply to risk of gas
inhalation not barred by insurer’s failure to inform in-
sured promptly of extent of coverage); State Farm
Mutual Automohbil Insurance Co. v. Hartford Accide nt
& Indemnity Company, 646 S.W.2d 379, 381 (Mo. Ct.
App. 1983) (defense that Excludes J excludes coverage
of automobile purchased during policy period for which
other insurance is purchased not barred even if insurer
initially denied coverage on other ground): Martinelli

Security Insurance Co. of New Haven. 490 S.W.2d
127, 434 (Mo, App. 1972) (insurer not barred from as-
usion for business pursuits despite insurer’s

suggestion at earlier trial that claim covered).

Under these cases, it is inappropriate to allow certain

enses to be implicitly waived by the failure to notify

he insured timely of such defenses where the insured
1} reasonable expectation of coverage under the
Explicit policy exclusions, such as a_ pollution

n, clearly call for the application of this limita-
tion on walver and estoppel because their clear notice to

n — oll : tain ¢2 : 4 ~~

VI Sssourl courts have allt wed Certain Vpes of defenses

he implicitly “waived ” cuch : LY Pe Pe ee eehial .

} t iil Lid L\ \ alived, SUCT] aS LUILIC!I ire pr VISIONS.
. 7* ° | 5 |

These pre VISIONS are conditions under general] contract

] 4 ¥ + = |

Sut as the insureds Diugation to notify promptly

Insurer Of a potential claim, which if not met. excuse
isurer trom peritorming on the contract. See Bartle-

Humphre (, 44] S.W.2d at 343 (‘forfeiture of

nN insurance contract Tor nonpavme! Ot premlum 1s not
. ’
A ) ed In he LW ind ri¢ COU ‘ il’€ |) m QO Sé 7
? } . > tx] } nel an ] yy + _
( mst; es W ( ( e an ele ) Walve

54a

to be implicitly waived may be viewed as consistent with
the rule against creating coverage because unlike the
case of explicit exclusion, in a forfeiture case the insured
did contract for insurance covering the risk at issue,
justifiably expects coverage under the policy, and reason-
ably will act in reliance on that expectation unless noti-
fied by the insurer of some grounds for denying coverage.
The Missouri courts have characterized this distinction
as one between creating coverage and preserving pre-
existing rights. See Stone v. Waters, 483 S.W.2d at 646;
Blew v. Connor, 328 S.W.2d 626, 681 (Mo. 1959) (en
bane) (referring reader to Court of Appeals decision,
310 S.W.2d 294, 303-04 (Mo. Ct. App. 1958) for full dis-
cussion of this point).

Plaintiffs argue that the Missouri Supreme Court held
in Aetna Casualty & Surety Co. v. Haas that policy ex-
clusions can be waived by an insurer’s failure to promptly
notify the insured of its intent to rely on them. See
Haas, 422 S.W.2d at 321. The Haas case did not involve
an exclusion provision integrated into the description of
policy coverage, however, and does not conflict with this
court’s analysis.

The Missouri appellate courts cited above as, which
hold that insurance coverage could not be created by the
doctrines of waiver and estoppel, considered and distin-
guished the Missouri Supreme Court’s decision in Haas.
In State Farm Mutual Automobile Insurance Co. v. Hart-
ford Accident & Indemnity Co., the court noted that Haas
involved a “purported exclusion,” contained in an _ at-
tached “rating classification sheet” that was held not to
modify the policy. 646 S.W.2d at 382. As such, it offers
no guidance about how the Missouri Supreme Court
would treat an argument for the implied waiver of an
explicit exclusion such as a pollution exclusion.

Lawrence v. New York Life Insurance Co. pointed out
that the Haas court had already determined that the al-
leged exclusion did not modify the policy before it applied

55a

the general rule that a stated reliance on one defense will
preclude the later assertion of a different defense.
Lawrence concluded that this additional, closing rationale
of the Haas court’s decision “did not actually rule any
viable issue in the Aetna [v. Haas] case and is therefore
dictum.” 649 S.W.2d at 466.

in some cases, as where the basis for the defense alleged
to have been waived is neither a forfeiture condition nor
an explicit exclusion provision.2° Nonetheless the rule
surely prevents the waiver of an explicit exclusion such
as the pollution exclusion clause which specifically states
that the activities encompassed by the exclusion are not
covered under the policy. To bar Aetna from asserting
this defense, according to the reasoning of the rule, would
be to rewrite the policy to cover risks specifically excluded
from it. Plaintiffs have not presented sufficient reason in
law or equity to do so. The court finds that Aetna has not
waived its pollution exclusion defense.

C. Hartford Pollution Exclusion Defense

In Hartford’s Answer to plaintiffs’ First Amended
Complaint, filed July 26, 1985, Hartford denies for the
first time any obligation to plaintiffs for “property dam-
age or bodily injury caused by the discharge of pollution
unless the pollution was sudden and accidental.” 27 Plain-
tiffs assert that as early as 1975, they gave Hartford
notice of how Bliss had discharged the dioxin. enabling
Hartford to assert a pollution exclusion defense if it in-
tended to. In a letter dated October 27, 1975. plaintiffs
informed Hartford of the J rry Drinkard, et al. claim.

“8 See, e.g., Stone v. Waters. 483 S.W.2d 639 (Mo. Ct. App. 1972
holding defense that automobile not listed in policy schedule barred
because liability initially denied on other ground; ruling said not

to create coverage but preseerve insured’s pre-existing rights

‘ Attachment B to Plaintiffs’ Waiver Motion.

56a

This letter stated quite bluntly, “Our contractor, instead
of safely disposing of the [dioxin] material, used it to
settle dust in certain horse arenas and stables.” **

There is no dispute that plaintiffs provided Hartford
with substantial information concerning the nature of
Russell Bliss’ disposal activities, and allegations relating
thereto, at the meeting in July 1983. The court finds
here, as with Aetna, that at least by the time of that
meeting, Hartford had sufficient information to notify
plaintiffs of its intention to assert a pollution exclusion
defense.

Plaintiffs have not shown that Hartford affirmatively
intended to waive its pollution exclusion clause by not as-
serting it prior to 1985. Moreover, any inferences to be
drawn from Hartford’s actions must be drawn in favor of
Hartford. Matsushita Electric Industrial Co. Ltd. v. Zenith
Radio Corp., 475 U.S. 574, 106 S. Ct. 1848 (1986). Hart-
ford attempted to reserve its rights in numerous letters
to plaintiffs before and after 1983. Hartford signed the
Interim Agreement, as did plaintiffs, which purported to
reserve the rights of all parties. This defendant also
claims that plaintiffs knew of its intention to rely on a
pollution exclusion defense for many years prior to its
July 26, 1985 pleading, as a result of oral conversations
between counsel.

In addition to their inability to demonstrate defendants’
intent to waive, plaintiffs have made no greater showing
of prejudice from Hartford’s delay than the trouble and
expense of bringing this suit, an effort that most likely
would have been necessary even if this delay had not oc-
curred. As the court’s analysis in part IV.D below ex-
plains, this is insufficient “‘prejudice”’ as a matter of law.

Hartford, like Aetna, seeks to assert as a defense that
the underlying claims come within the terms of its pollu-
tion exclusion clause and so are not covered by its policies.

“8 Attachment A to Plaintiffs’ Waiver Motion (Exhibit 4

57a

As this exclusion indicates that these risks are not cov-
ered under the policies, defendant argues, this defense
cannot be waived by delay in asserting it. Under these
circumstances, and for the reasons set forth earlier in
part IV.B (Aetna Pollution Exclusion Defense), the court
agrees and finds that Hartford is not barred from as-
serting its-pollution exclusion defense.

D. Hartford Conduct in Disregard of Law Defense

Also in its July 26, 1985 Answer, Hartford for the first
time asserts as a defense that its policies do not cover
“liability arising out of [plaintiffs’] actions or conduct in
express disregard of their legal obligations under state.
federal or local laws and regulations.” ” Plaintiffs argue
that the Vickers claira, which they notified Hartford ef
on December 16, 1982, raised this issue. The Vickers com-
plaint alleged that “the sale, distribution, use and method
of disposal of said contaminated waste oil by the defend-
ants constitutes a violation of the Federal Hazardous
Substances Act....

’°

Hartford responded to the Vickers claim with a “pro-
visional response” stating that it was “fully preserving
[its] rights.” *® Following the July 1983 meeting, which
Hartford concedes provided it with sufficient information
to adequately evaluate its coverage defenses, Hartford
contends that it continued to take the position that it was
fully reserving its rights as to whether it would or would
not defend or indemnify plaintiffs, until it had “fully re
viewed the matter.” *' Plaintiffs note, however, that al-

“8 Attachment B to Plaintiffs’ Waiver Motion (Hartford Answer

at {] PF

Support of Hartford Accident and Ir
to Plaintiffs’ Motion for Partial Summary Judgment Against Cer-
tain Defendants with Respect to the Waiver of Defenses. (“Har

rd’s Opposition to Plaintiffs’ Waiver Motion”

39 Attachment 2 to Memorandum of Points and Authorities in
;

ndemnity Company's Opposition

-+

31 Attachment 3 to Hartford’s Opposition to Plaintiffs’ Waiver

_

o8a

though Hartford stated in a February 24, 1983 letter
that it “has now reviewed these matters completely,” in-
cluding the Vickers claim, Hartford failed to assert the

conduct-in-disregard-of-laws defense until much later.

The court finds that the Vickers complaint’s assertion
of a violation of the Federal Hazardous Substances Act
was sufficient to put Hartford on notice of the potential
applicability of this defense. Hartford gives no persua-
sive reason why a reasonably prompt investigation did not
enable it to determine whether the disregard-of-laws de-
fense was viable. Hartford’s claim that it continued to
provide only provisional responses, even if accepted as
true, does not explain why an investigation did not make
a final response possible. Hartford’s contention that it
has discovered new information, not provided by plain-
tiffs, that supports its defense does not refute plaintiffs’
well-founded assertion that it possessed sufficient infor-
mation to assert that defense in 1983.

The court finds from the undisputed facts recounted
above that shortly after receiving notice of the Vickers
claim, Hartford had sufficient knowledge as a matter of
law to assert their conduct-in-disregard-of-law defense.
The court must now determine whether by failing to as-
sert that defense until 1985, Hartford has waived it.

The court finds that Missouri law should properly gov-
ern this issue as the interests of Missouri are strongly
implicated in the question of whether plaintiffs should be
indemnified for conduct which it is alleged was in express
disregard of local, state and federal laws and regulations.
This defense is based on conduct which is alleged to have
occurred in Missouri and which is alleged to have been in
disregard of Missouri law.

Hartford argues that the conduct-in-disregard-of-laws
defense cannot be waived because to do so would be to
create coverage not originally provided under the con-

ract, See Lai ‘TEMCE : Ne iv York Life Insurance Co.. 649

— . a

59a

S.W.2d at 465: State Farm Mutual Automobile Insurance
Co. v. Hartford Accident & Indenmity Company, 646
S.W.2d at 381: Martinelli »v. Security Insurance Co. of
New Haven, 490 S.W.2d at 434.

As the court discussed earlier,’*? however, under the
law of Missouri certain insurance coverage defenses ma’
be waived, under the proper circumstances, when cover-
age for the risk was originally provided under the policy.
A defense may be barred, the Missouri courts have said
when to do so would preserve pre-existing rights, rather
than create coverage. Compare Stone v. Waters, 43
S.W.2d at 645 with Lawrence v. New York Life Insur-
ance Co., 649 S.W.2d at 465. See also Blew v. Connor,
328 5.W.2d at 631 (citing discussion in Court of Ap-

peals’ decision, 310 S.W.2d at 303-04).

Unlike its pollution exclusion defense, Hartford’s de-

4 . ] 4 > 4 . i245 4 - : > } _
fense that plaintiffs are not entitled to coverage because

they acted without regard for the law is not based

in explicit exclusion in their policies. Rather, if success-
ful, it would act to prevent plaintiffs from realiz ( -
eran that othe rw f was els } nr clec| rf f
policies. This defense then, is closer in kind to for-
te ure pro 1S]0 wt ‘a } rs ti é rorce] Y QT -
existing rights under a poli an it is t un ¢

policy exclusion, which designates « n ;

outside the co erage } vided { the policies T lyt
concludes that in the proper circumstances, Hartford’s

defense of conduct-in-disregard-of-laws may be

under Missouri law.

. ~ \ ,
Both parties agree t inde Missou } 5
ance cases the intention to waive mus a
else the conduct relied upon as constituting ¥ ane
1 . ‘ . 1 99
Involve some element or estoppe . , - -
] > 4 >
hood OT A? LPI V Al sy \Io. 14 24 ™~ VU ;
) ) cone et .
‘,Q 1924 empnnasis rina f y +}
4 ’ Ty T
~ T [\ R \ t }

60a

they do not need to show Hartford’s intent to waive this
defense because Hartford’s knowledge of the defense and
their failure to assert it clearly establishes this. Absent
some element of estoppel, however, Missouri law require
that waiver be shown either by “express declarations [or
if| implied by conduct, there must be a clear, unequivocal,
and decisive act of party showing such purpose, and so
consistent with intention to waive that no other reason-
able explanation is possible.” DBartleman v. Humphrey,
441 $.W.2d at 3438. The circumstances of Hartford’s de-
lay in asserting this defense clearly do not meet thi
standard.

Plaintiffs assert again that the “trouble and expense”
of bringing this action satisfies the requirement stated
in Schwab that “the conduct relied upon as constituting
waiver must involve some element of estoppel.” Plaintiffs
cite Shelter v. Crouch, 714 S.W.2d &27, and Morris ».
Reed, 510 S.W.2d 234, to support this assertion. Hart-
ford argues that although these cases support the viev
that only a slight degree of prejudice is required for
waiver, the filing of this suit does not satisfy even that
minimal threshold. Unlike in Crouch, for example, there
is no indication that the delay in Hartford’s asserting it
disregard-of-laws defense caused any prejudice to plain-
tiffs ability to prepare to meet that defense.

In Crouch, the insurer was barred from asserting an
arson defense that it had failed to raise when it first
denied the claim. The court recognized the likelihood of
prejudice in preparing to meet an arson defense, if an
appropriate investigation is not made promptly after the
loss, stating “{ilf certain defenses can be raised later,
an insurance company can make it impossible for an in-
sured to know what the real defense is and thus mislead
an insured into not investigating that defense. When the
insured learns of the defense it may be too late for a
proper investigation.” 714 S.W.2d at 828.

a |
In Morris as well, the court found that the insured had
suffered substantial prejudice from the insurer’s delayed

assertion of certain defenses: “Much more trouble and

expense has been caused to this plaintiff than just the
normal filing of a lawsuit. The evidence shows that Home
and its representatives followed a course of conduct cal
culated to deflect plaintiffs from the insurance compa

as his target....”’ 510 S.W. at 241.

There is no indication that plaintiffs have suffered a:
prejudice, outside of this lawsuit, as a result of H
ford’s assertion of this defence in 19%5. Plaintiffs do not
claim, however, that this suit would have been unnec
sary if Hartford had asserted this defense in 1943 o1
earlier. The fact that plaintiffs must now litigate th

issue raised by this defense does not constitute a suffi
cient “element of estoppel,” in the view of this court, to
justify barring this defense.

The court find that plaintiff are not entitled
judgment barring Hartford from asserting its defe
conduct in disregard of lav
I. Ame rican Home. Le rington OM [SOP Pollutio I.

f lusion De ICnSE

On September 2, 19%6 excess insurers American Home
Lexington and ISOP notified plaintiffs’ counse!
of their intention to reserve their rights, based or
coverage defense including pollution «

f ( TI defense had not been raised in the def a
wer or Amended Answer, nor In any p

communications with plaintiffs. Plaintiffs have mover

fo) Imma) judgme! jay) ing the f cle f¢ j

raising a pollution exclusion defense. Plaintiff

} y {: no tO j ert ae defey é y y {

quiring tne Wy formation necessary to establish

n Home, Lexingtor nd JSO] alve (
exclusion defense

ly a ny ri? {f ( vy r ( y
determine whet! they } , lef

( ed +} ’ {oO rY y y ( ‘

6?

aa

-
|
=~

ed

exclusion defense prior to September 1986. Lexington a
ISOP acknowledge that they attended the July 19, 1983
]

informational meeting. American Home, 1U 1S undisputed,

a i. 5 on oe ] 4 1 > is ’ >
did not attend the meeting and objects to plaintiffs’ im-

plicit suggestion that knowledge of the substance of the
meeting should be imputed LO it hecaust \f its corporate
relationship to Lexington and ISOP. American Home’s
nowledge of what transpired at this meeting is at least
partially in dispute

None of the three defendants disputes that it received

copy of the Wehner complaint by letter dated April 14,
1983. The complain aagen that Bliss, working for IPC,

dust-control measure on
unpaved roadways in alias ‘eee towns.” Ex. 5
at 17-18. The Wehner complaint clearly spells out the
method by which dioxin found its way to the roadways
1. American Home can hardly

assert that this complaint was insufficient notice merely,

yrayed [dioxin-laden o

and horse arenas of Misso

; Le, _ : a 1} - . rm. 17
because the “facts” asserted were allegations. These alle-
}

gyrations were cearly sufficient to warrant a prompt

Even leaving time for investigation, the court finds that
. aa ee rh . ] o% : 3 > os
American Home knew or should have known of the exist-
ence of grounds for its pollution exclusien defense by

late 1983. It is clear also that Lexington and ISOP simi-

Re Pa EE > . . Te ‘>

irly had sufficient knowledge following the July 19, 1983
meeting to afin even earlier notice to plaintiffs of its

1) 4° . . ry — —— . , :
llution exclusion defense. The court must now deter-

: rl, lL, . , P 4 has S76) 1% | . — a , ~
mine whethe} defendat S nave Wal ed nelr rig! ) ASM
— Tlaat ly snAnN f hh, Pe » 4 P 4 4
a pollution exclusion defense by falilnge’ to asse
to 1986.

Defendants argue that as excess insurers, American
Home, Lexington and ISOP are now. ood rated Ul aAqdVIS¢

aintiffs of thelr coverage positiens until the underlving

primary insurers’ coverage is exhausted. The court need

63a

(1) have failed to show either an affirmative waiver or
some element of estoppel sufficient to support a finding
that defendants had waived their pollution exclusion de-

2) plaintiffs’ assertions of implied waiver
cannot create coverage explicitly excluded from the policy

> 4 llya4? . , .? ] .
by the pollution exclusion clause.

fenses and |

Plaintiffs base their argument for waiver on the black
letter rule that “an insurer, having denied liability on a
specified ground, may not thereafter deny liability on a
different ground.” Stone v. Waters, 483 S.W.2d at 645.
Although these defendants have not affirmatively denied
coverage on any ground, plaintiffs suggest that defend-
ants’ “inaction” should be treated as a denial. This con-
clusion is unwarranted by the facts and the law.

The court above has noted that the plaintiffs’ claim for
judgment must satisfy the conditions of Missouri law on
waiver and estoppel.** Missouri law regarding the waiver
of insurance defenses requires that “intention to waive
must plainly appear or else the acts or conduct relied
upon constituting waiver must involve some element of
estoppel.” Bartl nan OW, Humphre Y, 44] S.W.2d at 343
(citations omitted). Plaintiffs do not contest that these
defendant excess insurers have no present obligation to
defend or indemnify them. Nor do plaintiffs dispute that
they did not seek to have excess insurers presently defend
or indemnify them, or join in the Interim Agreement.
Within this factual context, these defendants’ failure to
notify plaintiffs of its coverage position prior to 1986
does not “plainly” suggest their intention to waive a
p lution exclusion defense. See also A. Windt, Insurance
Claims and Disputes, $2.18 at 52 (1982 (‘Insurer
should not be deemed to have waived its right later to

cle ny coverage simply by Virtue of its silence In a Sltua-

—
>)
+
—
~
—s)
+
—
aa

64a

Plaintiffs also have failed to show any prejudice from
defendants’ delay in asserting this defense, other than
the “trouble and expense” of bringing this suit. The
court has already determined above that the necessity of
filing this action does not constitute the “element of estop-
pel” required to establish a “waiver.” ** Plaintiffs have
not shown that they had even requested that defendants
defend or indemnify them, prior to the filing of this suit.
In Hunt v. State Farm Mutual Auto Insurance Co., 560
S.W.2d 280, 288 (Mo. Ct. App. 1977), the court held
that there was no estoppel when the insured had not
made a claim on the policy prior to the suit being filed.
This court finds that plaintiffs have not asserted sufficient
facts of waiver or estoppel to justify barring American
Home, Lexington and ISOP { from asserting their pollution
exclusion defenses.

The court notes also that the defense at issue here is
based on a pollution exclusion clause, which limits the
scope of the policy stating that risks coming within its
terms are not covered. The court concludes that based
on its earlier discussion of the Missouri rule against in-
surance coverage being created by the doctrines of waiver
or estoppel,*® plaintiffs are not entitled to a judgment
barring American Home, Lexington and ISOP from as-
serting its pollution exclusion defense.

F. Harbor Pollution Exclusion Defense

Excess insurer Harbor first asserted its pollution exclu-
sion defense in its Answer of August 12, 1985. In its
answers to interrogatories, Harbor states that it bases
its defense in part on the assertion that the dioxin con-
tained in the waste oil spread on Missouri lands “consti-
tutes ‘toxic chemical and/or waste materials,’ and/or ‘ir-
itants,’ and/or ‘contaminants,’ and/or ‘pollutants’ which

34 See supra part IV.D (Hartford Conduct in Disregard of Law
Defense).

35 See supra part IV.B (Aetna Pollution Exclusion Defense).

65a

were ‘discharged’ and/or ‘dispersed’ upon land by Russell
M. Bliss as an agent of the Plaintiffs.” ** Plaintiffs assert
that Harbor knew this information as of the July 1983
meeting. Harbor does not dispute this and acknowledges
that it did not provide plaintiffs with any information re-
garding its coverage position prior to its Answer in this
case on August 12, 1985. Plaintiffs argue that by failing
to inform them promptly of its intention to assert a pol-
lution exclusion defense, Harbor waived its right to that
defense.

Plaintiffs have shown no more evidence of waiver than
Harbor’s silence, in the face of plaintiffs’ extensive nego-
tiations with primary insurers—but not excess insurers—
for a defense agreement. The court has held above *’ that
with regard to excess insurers, where primary coverage
has not been exhausted, this showing is insufficient as a
matter of law to establish an intention to waive. Plain-
tiffs’ prejudice is similarly confined to the burden of
bringing this suit, which the court has also concluded is
inadequate as a matter of law to establish the necessary
element of estoppel.** The court finds that plaintiffs have
not shown sufficient evidence of waiver or estoppel, as a
matter of law, to warrant barring Harbor from asserting
its pollution exclusion defense.

The defense at issue, here, furthermore, is based on a
written pollution exclusion clause contained in the policy,
which states that the risks within its definition are not
covered under the policy. The court finds that because of
the Missouri rule avainst the creation of coverage by im-
plied waiver, plaintiffs are not entitled to a judgment
barring Harbor from asserting its pollution exclusion
defense.*®

36 Attachment M to Plaintiffs’ Waiver Motion at 40-41.

37 See supra part IV.E (American Home, Lexington and ISOP
Pollution Exclusion Defenses).

38 See supra part IV.D (Hartford Conduct in Disregard of Laws
Defense).

38 See supra part IV.B (Aetna Pollution Exclusion Defense).

66a

V. Summary
The court grants plaintiffs’ motion for partial sum-
mary judgment declaring that INA has waived its non-
disclosure defense with respect to its primary policies.
The remaining waiver motions are denied.

2. NONDISCLOSURE
Defendants INA and U.S. Fire have moved for sum-

mamr sadam Banta atum éhad eo a een . a
mary judgment declaring that their insurance policies do

4
> — > a > ~ » ¢ on — } 4 ] —
impose any obligations on them with regard to plain-

. . aI1o on bas e4
ioxin-related liabilit

— sal mt a : rh . 2

failed to disclose certain material information wnen ap-
plying for insurance coverage for the vears 1981-1983.
J

. “e « lx, PAN ~ . 4 lat : . . eal
More specifically, defendants assert that plaintiffs should

have disclosed the existence of a number of dioxin-related
‘laims, known as the “first series” of claims, that were
filed during the period 1975-1979. This information was
called for, according to defendants, as part of plaintiffs

++ lnecaoc fn . , 27 tesa 70 22073 +1,
Statement orf losses f0) the e) od 1975-1979 be iuse tnese

la} St . . ; ] ; ] y ; °7
claims were expected to impact on the policies covering
this period.

Plaintiffs argue that they were under no obligation to
provide defendants with information of claims filed dur-
ing these years nor was this information requested. They
contend that although the claims in question were filed
during the 1975-1979 period, they were properly not in-
cluded in the loss histories of this period, which they
agree their applications and submission purported to pre-
sent. A less history, according to plaintiffs, only includes
claims or losses which have been paid or for which re-
serves have been set aside for a given policy year.

Defendants INA and U.S. Fire based their motions, al-
ternatively, on the statutory law of Florida or New Yor!
which they argue bars plaintiffs who have failed to dis-
close material information requested by a prospective in-
surer from collecting on any policies entered into subject

to this nondisclosure.

Plaintiffs assert that defendants’ allegations of non-
lisclosure do not satisfy several of the statutes’ require-
ments, including that the undisclosed information (1) was
requested by the insurer, or otherwise falsely represented
and (2) was material to the insurer’s decision to enter
into the contract. Plaintiffs argue that an earlier deci-
sion of the court concluded that these questions are fac-
tual and should be left to the jury, and that the logie of
that decision Pst here precluding summary judgment.
See Memorandum of January 8, 1987 at 8-10 (denying
INA primary po licy motion for summary judgment on

7

liga] 1} — 1+) Anni)? . Wlawd: Ohta “inallry
nondisclosure grounds; applying Florida law). Finally,
‘

plaintiffs claim that INA and U.S. Fire have waived their

nondisclosure defenses, as discussed in their waiver mo-
tion
The analysis below v first determine which state’s
aw ¥ rover?) his iss le, and then n exam) ine defe nd ints’
aims in the following order: (a) IN, A] iry policies:

b INA excess policies: and (Cc) U ow. F ire excess policies,

I. Choices of Law

‘he court has already determined that Florida law gov-
erns the issue of nondiscl losure for INA’s primary poli-
cies." The court also has ruled that where the policies

ling, and New

York law does not conflict with a fundamental poliey of

+ 3 : ] Iona N] , Tayle 1. r Qa +.
at Issue designate New York iaW aS contro

he nondisclosure
issue, New York law would govern.*! The excess insur-
ince policies of both INA and U.S. Fire state that New
York law should be applied.

ne state with the Preatest interest

t

In their pleadings on the present motions, both INA
and U.S. Fire have agreed that there is no conflict be-
tween New York and the law of Florida—the state with

L5-0; Supra section ] Waiver

68a

the greatest interest in the nondisclosure interest—but
argue that if such a conflict arises, Florida law should
control. Plaintiffs have agreed that there is no conflict
between the relevant law of New York and Florida and
acknowledge the primacy of Florida’s interest in the res-
olution of this issue.

The court agrees with the parties’ assessment that rele-
vant New York law presents no conflict with any funda-
mental policy of Florida law. The relevant New York
statute, N.Y. Ins. Law § 3105 (McKinney 1985),* and
case law reflect principles that are very similar to those
embodied in the relevant Florida statute, Fla. Stat.
§ 627.409 (1981) ,** and precedent.

In both New York and Florida, an insurer may avoid
coverage under its policies on grounds of nondisclosure
where the insured has (1) made a false representation or
failed to provide information requested by the insurer,
(2) which is material to the insurer’s decision to enter

42 See infra section 2 (Nondisclosure) part III (INA Excess

Policies).

43 (1) All statements and descriptions in any applicetion for an
insurance policy or annuity contract, or in negotiations therefor,
by or on behalf of the insured or annuitant, shall b2 deemed to
be representations and not warranties.

Misrepresentations, omissions, concealment of facts, and in-
correct statements shall not prevent a recovery under the policy
or contract unless either:

(a) Fraudulent; or

(b) Material either to the acceptance of the risk, or to the
hazard assumed by the insurer; or

(c) The insurer in good faith either would not have issued
the policy or contract, or would not have issued it at the same
premium rate, or would not have issued a policy or contract
in as large an amount, or would not have provided coverage
with respect to the hazard resulting in the loss, if the true facts
had been made known to the insurer as required either by the
application for the policy or contract or otherwise.

Fla. Stat. § 627.409 (1981).

69a

into the proposed contract. Compare Kulikowski v.
Roslyn Savings Bank, 121 A.D.2d 603, 503 N.Y.S.2d 863.
564 (N.Y. App. Div.) (applying § 3105), appeal dis-
missed, 69 N.Y.2d 705, 504 N.E.2d 691, 512 N.Y.S.2d
364 (N.Y. 1986) and Vande r Veer v. Continental Cas-
ualty Co., 34 N.Y.2d 50, 312 N.E.2d 156, 356 N.Y.S.2d
13, 14-15 (1974) (applying N.Y. Ins. Law § 149. precur-
sor to $3105) with Continental Assurance Co. v. Car-
roll, 485 So.2d 406, 409 (Fla. 1986) (construing
: 627.409) and Roess v. St. Paul Fire and Marine Ins.
Co., 383 F.Supp. 1231, 1236 (M.D. Fla. 1974) (inter-
preting § 627.409; discussing statute’s departure from
common law).

Even if a given case would have different outcomes in
these two jurisdictions, this variance between the law
of the two states does not present the kind of fundamental
conflict that would prevent the application of New York
law here. See Restatement (Second) of Conflict of Laws
; 187 comment g (1971) (“The forum will not refrain
from applying the chosen law merely because this would
lead to a different result than would be obtained under
the local law of the state of the otherwise applicable
law.) The court does not believe, moreover, that the

}° ° c — = F - " oraelrl . ly , 1 . .
application of Florida law would produce a different reso-

In light of the absence of conflict between the relevant
law and any fundamental policy of Florida
aw, the court will apply the choice of law made by the

parties at the time of contracting—New York law.

ae INA Primary Policies

The court has ruled above that INA is barred from

° ° 1° ; a “1 oe oie ‘ :
erting 1tS nondisclosure defense with regard to its Dri-

mary insurance poicies because of ItS ITaliure to promptly

70

notify plaintiffs of its intent to assert that defense, as
required by Florida statute section 627.426 (2) .*

Ill. JNA Excess Policies

With regard to INA’s excess insurance policies, the
court above has denied plaintiffs’ motion to bar a nondis-
closure defense on waiver grounds.** As the choice-of-law
discussion above indicates, INA’s excess insurance policy
nondisclosure defense will be governed by New York law.
The relevant New York statute reads as follows:

§ 3105 Representations by the insured

(a) A representation is a statement as to past or
present fact, made to the insurer by, or by the au-
thority of, the applicant for insurance or the prospec-
tive insured, at or before the making of the insur-
ance contract as an inducement to the making thereof.
A misrepresentation is a false representation, and
the facts misrepresented are those facts which make
the representation false.

(b) No misrepresentation shall avoid any contract
of insurance or defeat recovery thereunder unless
such misrepresentation was material. No misrepre-
sentation shall be deemed material unless knowledge
by the insurer of the facts misrepresented would have
led to a refusal by the insurer to make such contract.

N. Y. Ins. L

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386011_0139%3A2. Public record. Not legal advice.